Accounts Receivable (A/R) Discounted
- Accounts Receivable (A/R) Discounted
- Outstanding invoices representing money owed to a creditor which the firm/creditor sells to a buyer for less than face value, typically to quickly raise capital and improve cash flow. The buying firm - also referred to as a “factor” - purchases the financial obligation at a discounted rate providing the selling firm with immediate cash. However, the sale is undertaken without recourse, meaning that the factor assumes full responsibility for collecting the money owed in order to recoup its financial layout for the account.
Accounts receivables are often sold at a discount in order to mitigate the risk that the debtor will not satisfy the obligation. The discount arises because the factor assumes the underlying risk of the receivables and must be compensated for the delayed inflow of funds.
Previously only large firms that could meet minimum threshold requirements could enter into a relationship with a factoring firm (typically a large bank) to sell their receivables and obtain much-needed cash, and often with recourse. Today, medium- and small-sized firms operating in virtually all industries (i.e. IT firms, manufacturers, even hospitals) can find ways to sell their A/Rs for a discounted rate to individual factoring firms or through factoring broker intermediaries.
Investment dictionary.
Academic.
2012.
Look at other dictionaries:
Working capital — Accountancy Key concepts Accountant · Accounting period · Bookkeeping · Cash and accrual basis · Cash flow management · Chart of accounts … Wikipedia
Net operating assets — (NOA) are a businesses operating assets minus its operating liabilities. NOA is calculated by reformatting the balance sheet so that operating activities are separated from financing activities. This is done so that the operating performance of… … Wikipedia
factoring — Sale of accounts receivable of a firm to a factor at a discounted price. The purchase of accounts receivable from a business by a factor who thereby assumes the risk of loss in return for some agreed discount. Manhattan Factoring Corp. v. Orsburn … Black's law dictionary
factoring — Sale of accounts receivable of a firm to a factor at a discounted price. The purchase of accounts receivable from a business by a factor who thereby assumes the risk of loss in return for some agreed discount. Manhattan Factoring Corp. v. Orsburn … Black's law dictionary
Microsoft Small Business Financials — (formerly Microsoft Small Business Manager) is a business accounting software package. The software is targeting growing small businesses that require more than basic accounting software [1] [2]: with less than 25 employees[3] and less than $10… … Wikipedia
Net capital rule — The uniform net capital rule is a rule created by the U.S. Securities and Exchange Commission ( SEC ) in 1975 to regulate directly the ability of broker dealers to meet their financial obligations to customers and other creditors.[1] Broker… … Wikipedia
Royalties — Not to be confused with Royal family. Royalty cheque. Royalties (sometimes, running royalties, or private sector taxes) are usage based payments made by one party (the licensee ) to another (the licensor ) for the right to ongoing use of an asset … Wikipedia
