Accounts Receivable
Account receivable – any amount owed to a business by a customer as a result of a purchase of goods or services from it on a credit basis. The company making the sale does not receive an acceptance or promissory note (i.e., written orders or promises to pay) from the purchaser. Still, it merely enters the amount due as a current asset in its books. Accounts receivable constitute a significant portion of the assets of many companies and tend to vary directly with sales.
Accounts receivable may be sold to finance companies or pledged as collateral to obtain loans from commercial banks or finance companies. This kind of financing differs from factoring in that the company’s customers are not notified that their accounts have been sold or pledged as collateral, and the company remains responsible for credit losses. This type of financing is frequently employed by smaller companies that cannot obtain additional credit from commercial banks and have no other highly liquid assets to offer as security [Britannica].
Accounts receivable financing is an agreement that involves capital principal concerning a company’s accounts receivables. Accounts receivable are assets equal to the outstanding balances of invoices billed to customers but not yet paid. Accounts receivables are reported on a company’s balance sheet as an asset, usually a current asset, with invoice payment required within one year [Investopedia 2020].
Tuovila, A. (2020). What Is Accounts Receivable Financing? Definition and Structuring. Investopedia. https://www.investopedia.com/terms/a/accountsreceivablefinancing.asp
Account receivable. Encyclopaedia Britannica. Retrieved from: https://www.britannica.com/topic/account-receivable