Accounts receivable financing

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Accounts receivable financing

A short-term financing method in which accounts receivable are collateral for cash advances. See: Factoring.

Accounts Receivable Financing

The selling of a firm's accounts receivable to a third party, known as a factor. If a firm is not confident in its ability to collect on its credit sales, it may sell the right to receive payment to the factor at a discount. The factor then assumes the credit risk associated with the accounts receivable. This allows the firm access to working capital immediately, which is important especially if the firm might otherwise have a cash flow problem. The price of accounts receivable financing is determined by the creditworthiness of the firm's customer, not of the firm itself. See also: Debt assignment.
References in periodicals archive ?
More specific to this region is an undisclosed factoring arrangement, which factors may agree to, but this depends upon the nature of the purchaser.
An undisclosed factoring arrangement, by its very nature, is not perfected so affords no rights to the factor against the purchaser.
In an undisclosed factoring arrangement, where no notice was served to the purchaser, the requirement of possession may be achieved by the company collecting the assigned receivables on behalf of the factor as its agent and obliging the company to pay the collected receivables into a blocked account held with the factor.
the assignment under an undisclosed factoring arrangement is never perfected, as mentioned above.
Under an undisclosed factoring arrangement, it is highly likely that the receivables will form part of the insolvent company's pool of assets as the assignment has not been perfected.
Therefore, an assignment under a recourse or non recourse factoring arrangement may still be effective if perfected first in time (against a competing interest) as against an assignment under an undisclosed factoring arrangement, which is never perfected.