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BLUE NOTES
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Receivable financing is the financial flexibility or capability of an entity to raise money out of its receivables.
Most Common Forms of Receivable Financing Used in Practice:
a. Pledging of accounts receivable
b. Assignment of accounts receivable
c. Factoring of accounts receivable
d. Discounting of notes receivable
Pledging of accounts receivable is usually made when obtaining loans from banks or any other lending institution. The
pledged receivables shall serve as a collateral security for the payment of the loan.
Accounting Treatment
Doesn’t require necessary entry in the books. Disclosure of such transaction in the financial statements is
enough.
Accounting for the loan is done in usual manner as any other loans.
Assignment of accounts receivable
evidenced by a financing agreement and a promissory note both of which the assignor signs
specific accounts receivable serve as a collateral security
The assignee usually only lends a certain amount in consideration for the assigned accounts in order to protect
itself from factors that may lead for the assigned accounts to be not fully realized such as sales discounts, sales
Recognition of loss on factoring
