CHAPTER 8.

RECIEVABLE
FINANCING.
REPORTED BY : LUISITO M. SANTOS
BSA/2ND SET B
RECIEVABLE FINANCING

- Its the financial flexibility or capability of an entity to raise money out of its receivables.
• An entity may find itself in tight cash position because sales decrease and customers are
not paying their accounts in time.
• But the entity current accounts and notes payable must continue to be paid if it’s credit
standing is not to suffer.
• If the situation becomes very critical, the entity may be forced to look for cash by
financing it’s receivables.
ILLUSTRATION OF RECIEVABLE FINANCING.

Cash
BUSINESS
ENTITY
Cash xx
Accounts Recivables xx
Notes Recievables xx
PPE xx BANK OR OTHER
Total Assets xx
LENDING
Accounts Payable xx INSTITUTION
Notes Payable xx

RECIEVABLE FINANCING
COMMON FORMS OF RECEIVABLE
FINANCING.

• PLEDGE OF ACCOUNTS RECEIVABLE

• ASSIGNMENT OF ACCOUNTS RECEIVABLE
• FACTORING OF ACCOUNTS RECEIVABLE
• DISCOUNTING OF NOTES RECIEVABLES.
PLEDGE OF ACCOUNTS RECEIVABLE

- The accounts receivables may be pledge as collateral security for the

payment of the loan. Pledging is general because all accounts receivable
serve as a collateral of the loan.
- Normally, the borrowing entity makes the collections of the pledge
accounts. No complex problems are involved in this form of financing.
• With respect to the pledge accounts, no entry would be necessary. It is
sufficient that disclosure thereof is made in a note to financial statement.
ASSIGNMENT OF ACCOUNTS RECEIVABLE.

- Means that a borrower called the assignor transfers it’s rights in some of
its accounts receivable to a lender called the assignee in consideration for a
loan.
Assignment is specific because specific accounts receivable serve as
collateral security for the loan.
• Assignment may be done either on a nonnotification or notification basis .
ASSIGNMENT OF ACCOUNTS RECEIVABLE

• NONNOTIFICATION BASIS.

-When accounts are assigned on a nonnotification basis, customers are not informed that their
accounts have been assigned.
• NOTIFICATION BASIS.

-When accounts are assigned on a notification basis, customers are notified to make their payments
directly to the assignee.
• The assignee usually lends only a certain percentage of the face value of the accounts assigned
because the assigned accounts may be not be fully realized by reason of such factors as sales
discounts, sales returns and allowances and uncollectible accounts.
FACTORING OF ACCOUNTS RECEIVABLE.

Factoring is a sale of accounts receivable on a without recourse

notification basis. In a factoring agreement, an entity sells the
accounts receivable to a bank or finance entity called a factor.
• A gain or loss is recognized for the difference between the
proceeds received and the net carrying amount of the
recievables factored.
FACTORING MAY TAKE FORM OF THE
FOLLOWING.
• Casual factoring – Is an ordinary sale of Asset.
• Factoring may involve a continuing arrangement where a finance entity purchases all of the
accounts receivable of a certain entity.
• - Moreover the factor may withhold a predetermined amount as a protection against
customer returns and allowances and other special adjustments.
- This amount withheld is known as the factors holdback.
- Final settlement of the factors holdback is made after the factored recievables have been fully
collected.