receivable financing

• Receivable financing


  is the financial flexibility or capability of an entity to raise money out of its receivables.
• general business decline


  During a ________________________, an entity may find itself in a tight cash position because sales decrease and customers are not paying their accounts on time.
• financial distress


  The entity then would be in a ________________ as collections of receivable are delayed but cash payments for obligations must be maintained.
• financing its receivables


  Under these circumstances, if the situation becomes very critical, the entity may be forced to look for cash by _________________________.
• 1. pledge of accounts receivable

  2. assignment of accounts receivable

  3. factoring of accounts receivable

  4. discounting of notes receivable


  common forms of receivable financing
• pledged


  When loans are obtained from the bank or any lending institution, the accounts receivable may be _____________________ as collateral security for the payment of the loan.
• Pledge of accounts receivable

  No complex problems are involved in this form of financing except the accounting for the loan.
• disclosure thereof is made in a note to financial statement

  With respect to the pledged accounts, no entry would be necessary. It is sufficient that _____________________________________________________________
• Assignment of accounts receivable


  __________________________ means that a borrower called the assignor transfers rights in some accounts receivable to a lender called the assignee in consideration for a loan.
• assignor


  In assignment of accounts receivable, borrower is called
• assignee


  In assignment of accounts receivable, lender is called:
• Assignment of accounts receivable


  is a more formal type of pledging of accounts receivable
• financing agreement and promissory note


  Assignment is secured borrowing /evidenced by a ______________________ and a ________________________ both of which the assignor signs.
• pledging


  is general because all accounts receivable serve as collateral security for the loan.
• assignment


  is specific because specific accounts receivable serve as collateral security for the loan
• nonnotification or notification basis.


  Types of Assignment:
• nonnotification basis


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


  Most common type of assignment
• nonnotification basis


  customers continue to make payments to the assignor, who in turn remits the collections to the assignee.
• notification basis


  customers are notified to make their payments directly to the assignee.
• service or financing charge or commission


  The assignee usually charges interest for the loan that it makes and requires a _____________________________________________ for the assignment agreement.
• equity in assigned accounts


  is equal to the balance of assigned accounts receivable minus the balance of the related note payable to bank.
• Factoring


  is a sale of accounts receivable usually on a without recourse, notification basis.
• Factoring


  an entity sells accounts receivable to a bank or finance entity called a factor.
• gain or loss


  is recognized for the difference between the proceeds received and the net carrying amount of the receivables factored.
• transfers ownership


  Factoring differs from an assignment in that an entity actually ______________________________ of the accounts receivable to the factor
• Factoring


  the factor assumes responsibility for uncollectible factored accounts
• assignment


  the assignor retains ownership of the accounta assigned
• Casual factoring

  Factoring as a continuing agreement


  Factoring may take the form of the following:
• factor


  In factoring, the _________ has then the responsibility of keeping the receivable records and collecting the accounts.
• Casual factoring


  If an entity finds itself in a critical cash position, it may be forced to factor some or all of its accounts receivable at a substantial discount to a bank or a finance entity to obtain the much needed cash.
• Factoring as a continuing agreement


  a finance entity purchases all of the accounts receivable of a certain entity.
• Factoring as a continuing agreement


  In this setup, before a merchandise is shipped to a customer, the selling entity requests the factor's credit approval.
• credit function

  collection function


  When the credit is approved in the Factoring as a continuing agreement, the factor then assumes the (1) and (2)
• factor's holdback


  the factor may withhold a predetermined amount as a protection against customer returns and allowances and other special adjustments called
• receivable from factor


  The factor's holdback is actually a classified as
• credit card


  A _____________ is a plastic card which enables the holder to obtain credit up to a predetermined limit from the issuer of the card for the purchase of goods and services,
• Diners Club

  American Express

  VISA

  MasterCard


  The major credit cards in the Philippines are: