• Receivables
  • Notes Receivable
  • Credit Terms
  • Cash Discount on Sales
  • Accounting for Bad Debts
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  • Bad Debts Allowance Method
  • Bad Debts as % of Sales
  • Bad Debts as % of Receivables
  • Recovery of Bad Debts
  • Accounts Receivable Aging
  • Assignment of Accounts Receivable
  • Factoring of Accounts Receivable

Assignment of accounts receivable is an agreement in which a business assigns its accounts receivable to a financing company in return for a loan. It is a way to finance cash flows for a business that otherwise finds it difficult to secure a loan, because the assigned receivables serve as collateral for the loan received.

By assignment of accounts receivable, the lender i.e. the financing company has the right to collect the receivables if the borrowing company i.e. actual owner of the receivables, fails to repay the loan in time. The financing company also receives finance charges / interest and service charges.

It is important to note that the receivables are not actually sold under an assignment agreement. If the ownership of the receivables is actually transferred, the agreement would be for sale / factoring of accounts receivable . Usually, the borrowing company would itself collect the assigned receivables and remit the loan amount as per agreement. It is only when the borrower fails to pay as per agreement, that the lender gets a right to collect the assigned receivables on its own.

The assignment of accounts receivable may be general or specific. A general assignment of accounts receivable entitles the lender to proceed to collect any accounts receivable of the borrowing company whereas in case of specific assignment of accounts receivable, the lender is only entitled to collect the accounts receivable specifically assigned to the lender.

The following example shows how to record transactions related to assignment of accounts receivable via journal entries:

On March 1, 20X6, Company A borrowed $50,000 from a bank and signed a 12% one month note payable. The bank charged 1% initial fee. Company A assigned $73,000 of its accounts receivable to the bank as a security. During March 20X6, the company collected $70,000 of the assigned accounts receivable and paid the principle and interest on note payable to the bank on April 1. $3,000 of the sales were returned by the customers.

Record the necessary journal entries by Company A.

Journal Entries on March 1

Initial fee = 0.01 × 50,000 = 500

Cash received = 50,000 – 500 = 49,500

The accounts receivable don't actually change ownership. But they may be to transferred to another account as shown the following journal entry. The impact on the balance sheet is only related to presentation, so this journal entry may not actually be passed. Usually, the fact that accounts receivable have been assigned, is stated in the notes to the financial statements.

Journal Entries on April 1

Interest expense = 50,000 × 12%/12 = 500

by Irfanullah Jan, ACCA and last modified on Oct 29, 2020

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assignment of accounts receivable journal entries

Assignment of Accounts Receivable Journal Entries

The assignment of accounts receivable journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting of accounts receivable assignment.

The assignment of accounts receivable journal entries are based on the following information:

  • Accounts receivable 50,000 on 45 days terms
  • Assignment fee of 1% (500)
  • Initial advance of 80% (40,000)
  • Cash received from customers 6,000
  • Interest on advances at 9%, outstanding on average for 40 days (40,000 x 9% x 40 / 365 = 395)

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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Assignment of Accounts Receivable – Trap for the Unwary

By  Steven A. Jacobson

Most businesses are familiar with the mechanics of an assignment of accounts receivable. A party seeking capital assigns its accounts receivable to a financing or factoring company that advances that party a stipulated percentage of the face amount of the receivables.

The factoring company, in turn, sends a notice of assignment of accounts receivable to the party obligated to pay the factoring company’s assignee, i.e. the account debtor. While fairly straightforward, this three-party arrangement has one potential trap for account debtors.

Most account debtors know that once they receive a notice of assignment of accounts receivable, they are obligated to commence payments to the factoring company. Continued payments to the assignee do not relieve the account debtor from its obligation to pay the factoring company.

It is not uncommon for a notice of assignment of accounts receivable to contain seemingly innocuous and boilerplate language along the following lines:

Please make the proper notations on your ledger and acknowledge this letter and that invoices are not subject to any claims or defenses you may have against the assignee.

Typically, the notice of assignment of accounts receivable is directed to an accounting department and is signed, acknowledged and returned to the factoring company without consideration of the waiver of defenses languages.

Even though a party may have a valid defense to payment to its assignee, it still must pay the face amount of the receivable to the factoring company if it has signed a waiver. In many cases, this will result in a party paying twice – once to the factoring company and once to have, for example, shoddy workmanship repaired or defective goods replaced. Despite the harsh result caused by an oftentimes inadvertent waiver agreement, the Uniform Commercial Code validates these provisions with limited exceptions. Accordingly, some procedures should be put in place to require a review of any notice of assignment of accounts receivable to make sure that an account debtor preserves its rights and defenses.

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You can raise cash fast by assigning your business accounts receivables or factoring your receivables. Assigning and factoring accounts receivables are popular because they provide off-balance sheet financing. The transaction normally does not appear in your financial statements and your customers may never know their accounts were assigned or factored. However, the differences between assigning and factoring receivables can impact your future cash flows and profits.

How Receivables Assignment Works

Assigning your accounts receivables means that you use them as collateral for a secured loan. The financial institution, such as a bank or loan company, analyzes the accounts receivable aging report. For each invoice that qualifies, you will likely receive 70 to 90 percent of the outstanding balance in cash, according to All Business . Depending on the lender, you may have to assign all your receivables or specific receivables to secure the loan. Once you have repaid the loan, you can use the accounts as collateral for a new loan.

Assignment Strengths and Weaknesses

Using your receivables as collateral lets you retain ownership of the accounts as long as you make your payments on time, says Accounting Coach. Since the lender deals directly with you, your customers never know that you have borrowed against their outstanding accounts. However, lenders charge high fees and interest on an assignment of accounts receivable loan. A loan made with recourse means that you still are responsible for repaying the loan if your customer defaults on their payments. You will lose ownership of your accounts if you do not repay the loan per the agreement terms.

How Factoring Receivables Works

When you factor your accounts receivable, you sell them to a financial institution or a company that specializes in purchasing accounts receivables. The factor analyzes your accounts receivable aging report to see which accounts meet their purchase criteria. Some factors will not purchase receivables that are delinquent 45 days or longer. Factors pay anywhere from 65 percent to 90 percent of an invoice’s value. Once you factor an account, the factor takes ownership of the invoices.

Factoring Strengths and Weaknesses

Factoring your accounts receivables gives you instant cash and puts the burden of collecting payment from slow or non-paying customers on the factor. If you sell the accounts without recourse, the factor cannot look to you for payment should your former customers default on the payments. On the other hand, factoring your receivables could result in your losing customers if they assume you sold their accounts because of financial problems. In addition, factoring receivables is expensive. Factors charge high fees and may retain recourse rights while paying you a fraction of your receivables' full value.

  • All Business: The Difference Between Factoring and Accounts Receivable Financing

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Receivables Finance And The Assignment Of Receivables

Tfg legal trade finance hub, receivables finance and the assignment of receivables.

A receivable represents money that is owed to a company and is expected to be paid in the future. Receivables finance, also known as accounts receivable financing, is a form of asset-based financing where a company leverages its outstanding receivables as collateral to secure short-term loans and obtain financing.

In case of default, the lender has a right to collect associated receivables from the company’s debtors. In brief, it is the process by which a company raises cash against its own book’s debts.

The company actually receives an amount equal to a reduced value of the pledged receivables, the age of the receivables impacting the amount of financing received. The company can get up to 90% of the amount of its receivables advanced.

This form of financing assists companies in unlocking funds that would otherwise remain tied up in accounts receivable, providing them with access to capital that is not immediately realised from outstanding debts.

Account Receivables Financing Diagram

FIG. 1: Accounts receivable financing operates by leveraging a company’s receivables to obtain financing.  Source: https://fhcadvisory.com/images/account-receivable-financing.jpg

Restrictions on the assignment of receivables – New legislation

Invoice  discounting  products under which a company assigns its receivables have been used by small and medium enterprises (SMEs) to raise capital. However, such products depend on the related receivables to be assignable at first.

Businesses have faced provisions that ban or restrict the assignment of receivables in commercial contracts by imposing a condition or other restrictions, which prevents them from being able to use their receivables to raise funds.

In 2015, the UK Government enacted the Small Business, Enterprise and Employment Act (SBEEA) by which raising finance on receivables is facilitated. Pursuant to this Act, regulations can be made to invalidate restrictions on the assignment of receivables in certain types of contract.

In other words, in certain circumstances, clauses which prevent assignment of a receivable in a contract between businesses is unenforceable. Especially, in its section 1(1), the Act provides that the authorised authority can, by regulations “make provision for the purpose of securing that any non-assignment of receivables term of a relevant contract:

  • has no effect;
  • has no effect in relation to persons of a prescribed description;
  • has effect in relation to persons of a prescribed description only for such purposes as may be prescribed.”

The underlying aim is to enable SMEs to use their receivables as financing to raise capital, through the possibility of assigning such receivables to another entity.

The aforementioned regulations, which allow invalidations of such restrictions on the assignment of receivables, are contained in the Business Contract Terms (Assignment of Receivables) Regulations 2018, which will apply to any term in a contract entered into force on or after 31 December 2018.

By virtue of its section 2(1) “Subject to regulations 3 and 4, a term in a contract has no effect to the extent that it prohibits or imposes a condition, or other restriction, on the assignment of a receivable arising under that contract or any other contract between the same parties.”

Such regulations apply to contracts for the supply of goods, services or intangible assets under which the supplier is entitled to be paid money. However, there are several exclusions to this rule.

In section 3, an exception exists where the supplier is a large enterprise or a special purpose vehicle (SPV). In section 4, there are listed exclusions for various contracts such as “for, or entered into in connection with, prescribed financial services”, contracts “where one or more of the parties to the contract is acting for purposes which are outside a trade, business or profession” or contracts “where none of the parties to the contract has entered into it in the course of carrying on a business in the United Kingdom”. Also, specific exclusions relate to contracts in energy, land, share purchase and business purchase.

Effects of the 2018 Regulations

As mentioned above, any contract terms that prevent, set conditions for, or place restrictions on transferring a receivable are considered invalid and cannot be legally enforced.

In light of this, the assignment of the right to be paid under a contract for the supply of goods (receivables) cannot be restricted or prohibited. However, parties are not prevented from restricting other contracts rights.

Non-assignment clauses can have varying forms. Such clauses are covered by the regulations when terms prevent the assignee from determining the validity or value of the receivable or their ability to enforce it.

Overall, these legislations have had an important impact for businesses involved in the financing of receivables, by facilitating such processes for SMEs.

Digital platforms and fintech solutions: The assignment of receivables has been significantly impacted by the digitisation of financial services. Fintech platforms and online marketplaces have been developed to make the financing and assignment of receivables easier.

These platforms employ tech to assess debtor creditworthiness and provide efficient investor and seller matching, including data analytics and artificial intelligence. They provide businesses more autonomy, transparency, and access to a wider range of possible investors.

Securitisation is an essential part of receivables financing. Asset-backed securities (ABS), a type of financial instrument made up of receivables, are then sold to investors.

Businesses are able to turn their receivables into fast cash by transferring the credit risk and cash flow rights to investors. Investors gain from diversification and potentially greater yields through securitisation, while businesses profit from increased liquidity and risk-reduction capabilities.

References:

https://www.tradefinanceglobal.com/finance-products/accounts-receivables-finance/  – 28/10/2018

https://www.legislation.gov.uk/ukpga/2015/26/section/1/enacted  – 28/10/2018

https://www.legislation.gov.uk/ukdsi/2018/9780111171080  – 28/10/2018

https://www.bis.org/publ/bppdf/bispap117.pdf  – Accessed 14/06/2023

https://www.investopedia.com/terms/a/asset-backedsecurity.asp  – Accessed 14/06/2023

https://www.imf.org/external/pubs/ft/fandd/2008/09/pdf/basics.pdf  – Accessed 14/06/2023

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1 | Introduction to International Trade Law 2 | Legal Trade Finance 3 | Standard Legal Charges 4 | Borrowing Base Facilities 5 | Governing law in trade finance transactions 6 | SPV Financing 7 | Guarantees and Indemnities 8 | Taking security over assets 9 | Receivables finance and the assignment of receivables 10 | Force Majeure 11 | Arbitration 12 | Master Participation Agreements 13 | Digital Negotiable Instruments 14 | Generative AI in Trade Law

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what is assignment of accounts receivable

What is the Assignment of Accounts Receivable?

Assignment of Accounts Receivable

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Assignment of accounts receivable.

Assignment of accounts receivable is a financing arrangement in which a company uses its accounts receivable as collateral to obtain a loan or financing from a financial institution or a lender. In this arrangement, the company “assigns” or transfers the rights to collect payments from the outstanding accounts receivable to the lender.

The lender then provides the company with a percentage of the assigned accounts receivable value as a loan, while retaining a portion as collateral or to cover potential defaults. The company is still responsible for collecting payments from its customers. When the customers make payments, the company forwards the collected amount to the lender, who applies the payment to the outstanding loan balance.

The assignment of accounts receivable is a common financing option for businesses with cash flow constraints or those that need immediate funding for working capital requirements or other short-term financial needs.

Example of the Assignment of Accounts Receivable

Let’s consider a fictional company, ABC Corp., that manufactures and sells electronics. ABC Corp. has $200,000 worth of outstanding accounts receivable, but it needs immediate cash to purchase raw materials and pay its employees.

ABC Corp. approaches XYZ Bank to obtain financing using its accounts receivable as collateral. XYZ Bank agrees to provide a loan of 85% of the total accounts receivable value, which amounts to $170,000 (85% of $200,000).

In this arrangement, ABC Corp. assigns the accounts receivable to XYZ Bank, and XYZ Bank provides the company with $170,000 in financing. ABC Corp. remains responsible for collecting payments from its customers.

As customers of ABC Corp. pay their invoices, the company forwards the collected payments to XYZ Bank. XYZ Bank then applies these payments to reduce the outstanding loan balance. Once all the outstanding invoices are collected and the loan balance is paid off, the assignment of accounts receivable is considered complete.

This arrangement allows ABC Corp. to obtain the immediate cash it needs to continue its business operations, while XYZ Bank takes on the risk associated with the accounts receivable collection process.

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What Is Accounts Receivable?

Key points: .

  • Accounts receivable (A/R) reflects the total of credit payments owed to your business by your customers and that should be received within the next year.
  • Accounts receivable should be recorded on both your general ledger and balance sheet.
  • Accounts receivable is considered a liquid asset and a current asset.
  • The efficiency of your accounts receivable efforts can be monitored using an A/R aging report or by tracking key accounts receivable metrics and KPIs.
  • Accounts receivable management has a direct impact on your cash flow, administrative overhead, and customer loyalty.

Automated accounts receivable

See how invoiced's automated a/r software can get you paid faster, accounts receivable definition.

Accounts receivable is an accounting term that reflects the funds owed to your business by customers who have already received a good or service but have not yet paid for it. Unless you require advanced payments or deal with cash on delivery (COD) sales only, you must record these credit-based transactions as A/R within your general ledger and corporate balance sheet.

For bookkeeping, consider A/R an asset that is both liquid (can be easily converted to cash) and current (will be resolved through regular business over the next year). As such, the funds can be factored into determining your organization’s working capital or used as collateral for short-term loans.

Colloquially, the term “accounts receivable” is also frequently used to refer to the related departments, personnel, and systems responsible for managing and tracking these unpaid debts.

Accounts receivable vs. accounts payable

Where accounts receivable reflect the funds that need to be paid to your business due to credit-based purchases from your customers, accounts payable reflect the funds that your business needs to pay out to vendors and suppliers for the credit-based purchases that you’ve made. In other words, when you buy on credit, it affects your A/P, and when you sell on credit, it affects your A/R.

For a more nuanced comparison between A/P and A/R, see our article, Accounts Payable vs Accounts Receivable

Accounts receivable processes

Fortunately, the accounts receivable process — at least from a bookkeeping perspective — is relatively straightforward:

  • Your customer notifies you of an intent to buy your goods or services on credit through a signed contract or purchase order.
  • You deliver the ordered goods or services.
  • You provide the customer, either at the time of delivery or shortly thereafter, with an invoice that notes the amount owed and when it is due to be paid (typically within 30 days).
  • Typically, invoice entries are listed as a credit to sales revenue on your income statement and a debit to accounts receivable on your balance sheet.
  • You wait — hopefully not long — for payment. Ideally, you’ll communicate with your customers at regular intervals to remind them of the outstanding invoice.
  • If paid, you record the received funds as a debit to your cash account and a credit to accounts receivable on your balance sheet.
  • If not paid, you would note the total as an expense in the bad debt account of your income statement.

Where and what is accounts receivable on a balance sheet? 

A balance sheet is a financial document that records the assets, liabilities, and shareholder equity of a business at a given moment. 

  • Assets : Reflect on anything that provides the business an economic benefit or reward.
  • Liabilities : Represent funds owed to an outside organization (e.g., vendor, bank).
  • Shareholder equity : The monetary value available to shareholders if the business was liquidated and its debts were paid off.

As noted earlier, accounts receivable is an asset, so that you will find your accounts receivable listed in the assets section of your balance sheet and general ledger.

How to record A/R on a balance sheet

Typically, you’ll separate the different types of assets listed on your balance sheet, identifying current assets, fixed assets (e.g., land, buildings, equipment), and other (often intangible) assets.

For example, your balance sheet may look something like:

Accounts receivable aging report

Unfortunately, not all of your customers will pay their debts promptly, meaning you’ll likely have to do some chasing to recover those outstanding funds. This process, known as “dunning,” typically involves sending reminders to these (or soon-to-be delinquent) accounts. To track how well your dunning efforts are going, you should regularly create accounts receivable aging reports.

An A/R aging report (sometimes called an “A/R aging schedule”) records all of the outstanding payments that are still due to your business from your customers. It parses that data by how long the given debts have been owed. At a glance, you can track not only the individual promptness of each of your customers but also gain a thorough understanding of how smoothly your A/R operations are going.

A/R aging report example:

The example above uses 30-day increments to separate the debts, but if you follow an atypical billing cycle or offer non-standard credit options, you may choose an alternate schedule. Further, we provided a simpler format that identifies a company’s accounts receivable on a single row. However, suppose your business sends higher volumes of individual invoices to customers over a month. In that case, you’ll likely choose a more detailed format with additional rows that break out the owed amounts by specific invoice.

Accounts receivable formulas that help measure A/R health

Average accounts receivable.

As the name would suggest, average accounts receivable reflects the average value of debts owed to your business by its customers over a given period. In contrast, the A/R figures that you’ll see on a given financial report will exclusively reflect the specific value at the moment the reporting period is ended—offering little insight into the preceding days or weeks.

Admittedly, you likely won’t spend much time evaluating your average accounts receivable independently, but this value is critical for more complex performance metrics like net credit sales and accounts receivable turnover.

Average Accounts Receivable = (Beginning A/R Total + Ending A/R Total) ÷ 2

Accounts receivable turnover ratio

Sometimes referred to as the “debtor’s turnover ratio,” the average accounts receivable turnover (ART) ratio essentially tracks how many times a given company collects a sum of funds equal to its average accounts receivable balance throughout a set period (commonly a year). By monitoring this payout frequency, you can better manage how efficiently your business is collecting revenue—the higher the value, the more productive your A/R processes likely are.

Accounts Receivable Turnover = Net Credit Sales ÷ Average Accounts Receivable

Other important metrics

As you might imagine, there are other critical key performance indicators (KPIs) that you should be monitoring beyond the two primary ones we just outlined. Ideally, you’d also want to track:

  • Average collection period
  • Average delinquent days (ADD)
  • Bad debt to sales
  • Collection cost
  • Collection Effectiveness Index (CEI)
  • Day sales outstanding (DSO)
  • Number of revised invoices
  • Right party contacted (RPC) rate

What it means to manage your accounts receivable 

If your A/R performance metrics are lower than you want, the right strategies and policies can help you boost internal efficiencies while capturing more payments. Consider employing:

  • Automation: Unneeded delays can drag out the entire A/R cycle. But with automated workflows that provide validation, authorization, and invoice creation without human effort, you can cut wait times out of your process.
  • Due diligence: Financial tides can shift surprisingly fast, so you’ll want to actively monitor the ongoing financial health and credit history of your customers. And if you spot issues, consider limiting available credit or requiring advanced payment.
  • Dunning: Don’t leave money on the table. Employ consistent, scheduled, multi-channel touches that gently but encourage payment.
  • Early-payment incentives: Don’t forget the carrot when pursuing prompt payments. By offering a percentage discount or other perk for rapid invoice resolution, you can likely capture more interest.
  • Formalized credit processes: Establish clear guidelines that dictate how your business determines credit limits, payment terms, and penalties. Then, enforce these policies for all customers.
  • Reporting and analytics: To address an issue effectively, it helps to know what is happening. With routine, comprehensive reports that capture a broad range of performance metrics, you can gain the insight to make smarter, better-informed process decisions.

Benefits of well-managed A/R  

Build customer loyalty.

There are few things more frustrating than struggling to give someone money. On paper, this should be a relatively easy task, but overly complicated or error-prone A/R processes can drag out the entire timeline. Conversely, an efficient, honest, and reliable payment process can improve customer satisfaction and even higher sales.

Cut administrative costs

You’ve got to spend money to collect money. Any measure that your business takes to monitor or capture the revenue from credit-based purchases will require technology and personnel—resources that you have to pay for. But when you can do more with less, you can better recoup some of that outstanding debt with a lower overhead of time, energy, and capital.

Expand your customer pool

Not every business has the cash to pay for purchases when they’re received. Resellers and manufacturers, for example, often need to make credit-based purchases to obtain the raw materials required to generate later profits. But when your A/R processes are lagging—particularly those efforts tied to credit monitoring and evaluation—knowing which potential buyers you can trust to pay may prove challenging and will limit potential sales. Conversely, with the right policies in place, you can recognize safer bets that you might have previously overlooked.

Strengthen your cash position

The most prominent benefit is the ability to secure payments for more of your outstanding debt, which directly relates to a corresponding increase in your cash position and overall revenue. Put simply, it means your business works for free less often.

How accounts receivable automation software can help improve your A/R workflow

Collections: By automating your dunning tasks , you can avoid unnecessary communication delays and ensure that your customers are being contacted consistently and at the right time.

Employee performance: Offload those mind-numbing, repetitive tasks to an automation platform that can never get bored. And without all of this busy work, your workers can instead focus on more strategic—and valuable—efforts, like building stronger customer relationships.

Fraud : The more people involved in your billing and financial efforts, the more risk you add to the entire process. Conversely, automation requires fewer touches to support your billing efforts, limiting the opportunity for underpayments, unauthorized discounts, and customer data theft.

Errors: Despite our best intentions, humans make mistakes. Automation limits the direct involvement of your personnel within your actual A/R activities, eroding the potential for calculation or transcription errors to show up in your billing, meaning your staff will spend a lot less time on dispute management.

Risk management: With automated A/R processes, you’ll receive a steady stream of data and metadata regarding customer habits and payment choices that can be easily collected and reported. Armed with these records, you can begin making data-driven decisions on how and to whom you extend credit.

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Assignment of Accounts Receivable

Moneyzine Editor

The financial accounting term assignment of accounts receivable refers to the process whereby a company borrows cash from a lender, and uses the receivable as collateral on the loan. When accounts receivable is assigned, the terms of the agreement should be noted in the company's financial statements.

Explanation

In the normal course of business, customers are constantly making purchases on credit and remitting payments. Transferring receivables to another party allows companies to reduce the sales to cash revenue cycle time. Also known as pledging, assignment of accounts receivable is one of two ways companies dispose of receivables, the other being factoring.

The assignment process involves an agreement with a lending institution, and the creation of a promissory note that pledges a portion of the company's accounts receivable as collateral on the loan. If the company does not fulfill its obligation under the agreement, the lender has a right to collect the receivables. There are two ways this can be accomplished:

General Assignment : a portion of, or all, receivables owned by the company are pledged as collateral. The only transaction recorded by the company is a credit to cash and a debit to notes payable. If material, the terms of the agreement should also appear in the notes to the company's financial statements.

Specific Assignment : the lender and borrower enter into an agreement that identifies specific accounts to be used as collateral. The two parties will also outline who will attempt to collect the receivable, and whether or not the debtor will be notified.

In the case of specific assignment, if the company and lender agree the lending institution will collect the receivables, the debtor will be instructed to remit payment directly to the lender.

The journal entries for general assignments are fairly straightforward. In the example below, Company A records the receipt of a $100,000 loan collateralized using accounts receivable, and the creation of notes payable for $100,000.

In specific assignments, the entries are more complex since the receivable includes accounts that are explicitly identified. In this case, Company A has pledged $200,000 of accounts in exchange for a loan of $100,000.

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What is an Assignment of Accounts Receivable?

a security arrangement between a lender and borrower under which the borrower agrees with the lender that the amounts owed to them by their customers, their "accounts receivable," become payable directly to the lender.

Details of an Assignment of Accounts Receivable

When customers purchase goods or services but don't pay for them right away, they are now in debt to the provider. The balance of this debt—what the customer owes—is called an account receivable. The collection of all the money from customers owed to your business are the accounts receivable.

If you borrow money, particularly as a business, the lender will ask you to provide security. Security is funds that the lender can access to recover the funds they lent (as well as any interest) if the borrower does not repay the loan. The lender may also ask you to sign other security agreements with your loan. These might be called general security agreements, indentures, pledges, or mortgages. Security agreements should be reviewed by a lawyer or other qualified professional you trust.

If a business frequently has accounts receivable and gives a lender security to borrow money, the lender will frequently insist that the borrower agrees to an accounts receivable assignment. Under the typical form of that agreement, if you do not repay the loan. The borrower has the right to directly collect the accounts receivable from your customers to pay off the loan and any interest owed.

Example of an Assignment of Accounts Receivable

Imagine you run a business that sells custom-built computers and similar hardware to businesses. You take an order from a customer for $50,000 worth of hardware with a $5,000 deposit. $45,000 is payable within 30 days after delivery. However, to acquire the hardware to complete the order, you have to use all of your operating capital. After delivering the hardware and the invoice for $45,000 to your client, you still have to pay rent and payroll in the amount of $25,000 before the date that the $45,000 invoice is due. When you approach your lender for a short-term loan, they require you to sign an assignment of that specific account receivable to receive the loan.

In an ideal scenario, you would pay the rent and payroll with the loan. The customer pays the $45,000 invoice, and you repay the loan. The assignment is discharged, the loan repaid, and everyone is happy. However, there might be a scenario where the customer doesn't pay on time, and you are unable to pay the loan back. In that case, the lender would exercise the assignment of the account receivable, and go directly to your customer and take the $45,000 owing. If there were excess funds over $25,000 and interest and costs incurred by the lender in recovering the funds, those would be returned to you.

Types of an Assignment of Accounts Receivable

There can be different types of assignments of accounts receivable. A very common form is a general assignment of accounts receivable. In this form, the lender is entitled to collect any accounts receivable that you might have at the time that you have failed to repay your loan.

A different form is a specific assignment of accounts receivable. Under this form, you would give the borrower a list of the amounts and customers that have accounts receivable that are being assigned. If you do not repay your loan, the borrower can only collect the accounts receivable that remain outstanding from those on the list that were specifically assigned.

There are other types of financing arrangements that a lender might agree to or propose. One of the more common ones is referred to as accounts receivable financing or "factoring." Under these types of arrangements, there is typically a purchase agreement under which the financing company actually purchases the accounts receivable from you and then directly collects the accounts receivable from your customers. The difference here is that the financing company assumes that the business may not collect the accounts receivable. They also take on the costs of the collection. The result is that these arrangements typically have more expensive rates and costs than a lending arrangement where you continue to bear the risk of collection.

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Notice of Assignment of Accounts Receivable Under the PPSA: What Every Factor Should Know

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INTRODUCTION

Factoring is the legal relationship between a financial institution (the “Factor”) and a business (the “Client”) selling goods or providing services to a trade customer (the “Customer”), pursuant to which the Factor purchases the accounts receivable owing to the Client by its Customer. The Courts in Ontario have determined that a factoring agreement creates a security interest and, as such, is subject to the provisions of the Ontario Personal Property Security Act R.S.O. 1990 c.P.10 (the “PPSA”). This means, among other things, that the Factor must register a financing statement against the Client under the PPSA claiming a security interest in the Client’s accounts receivable. A factoring agreement may be on a notification or a non-notification basis.

A factoring agreement on a notification basis requires that the Client’s Customer be notified regarding the purchase of the accounts receivable by the Factor and the assignment of the accounts receivable by the Client to the Factor. One purpose of notifying the Customer is to require the Customer to make payment on the accounts receivable directly to the Factor, instead of to the Client.

A notice of assignment is governed by Section 40(2) of the PPSA, which states that an account debtor (i.e., the Customer) may pay the assignor (i.e., the Client) until the Customer receives notice, reasonably identifying the relevant rights, that the accounts receivable have been assigned. If requested by the Customer, the Factor is required, within a reasonable period of time, to furnish proof of the assignment and, if the Factor fails to do so, the Customer may pay the Client.

What constitutes adequate notice of an assignment of accounts receivable? The PPSA does not set out a statutory form of notice of assignment. In RPG Receivables Purchase Group Inc. v. Krones Machinery Co. Limited , 2010 ONSC 2372, C. W. Hourigan J. of the Ontario Superior Court of Justice was required to review a notification of assignment and to determine whether it was adequate. The Court’s decision is an important guide to the essential elements that should be included in the notice of assignment.

The facts were as follows:

1. On July 14, 2005, RPG Receivables Purchase Group Inc. (“RPG”) entered into a factoring agreement with its client Kennedy Automation Limited (“Kennedy”), pursuant to which RPG agreed to purchase certain of Kennedy’s accounts receivable, including accounts receivable due from its customer Krones Machinery Co. Limited (“Krones”).

2. On July 14, 2005, Kennedy faxed a notification of assignment to Krones, which read as follows:

“NOTIFICATION OF ASSIGNMENT

In order to grow and serve you better, we have retained the services of RPG Receivables Purchase Group Inc. to accelerate and stabilize our cash flow. Through their accounts receivable program, RPG has purchased and we have assigned to them all of our right, title and interest in all currently outstanding as well as all future accounts receivable from your company.

We request that all payments be made payable and mailed directly to:

RPG Receivables Purchase Group Inc. (“RPG”)
Suite 300, 221 Lakeshore Road East
Oakville, ON L6J 1H7
Tel (905) 338-8777 (800) 837-0265
Fax (905) 842-0242

This notice of assignment and payment instructions will remain in full force and effect until RPG advises you otherwise in writing. Please note that their receipt of payment is the only valid discharge of the debt and that RPG’s interest has been registered under the Personal Property Security Act of the Province of Ontario.

Although this notification is effective upon receipt by you, in order to complete RPG’s records, we would appreciate your acknowledgement of this notification and your confirmation that:

  • the invoices on the attached statement are for goods and/ or services completed to your satisfaction (please note any exceptions or simply provide a listing from your accounts payable); and
  • that payments will be scheduled in accordance with the invoice terms and that your accounts payable records have been modified to ensure payment of the full invoice amounts directly to RPG or you will notify RPG of any disputes or potential chargebacks in a timely manner.

Please fax and mail the signed copy of this letter to RPG Receivables Purchase Group Inc., who shall be entitled to rely upon your notification and confirmation as a separate agreement made between you and them. Thanks for your help and cooperation. We look forward to serving you in the future.”

3. On August 5, 2006, Krones executed the notification of assignment and returned the executed copy to RPG.

4. In 2007, Kennedy entered into agreements with Krones for the supply of services and materials to Krones in relation to various projects including projects in Etobicoke, Edmonton, and Moncton.

5. Before Kennedy submitted its invoices to Krones, Kennedy provided the invoices to RPG and RPG stamped each invoice as follows:

“NOTICE OF ASSIGNMENT All payments hereunder have been assigned and are to be made directly to:

RPG RECEIVABLES PURCHASE GROUP INC.
221 Lakeshore Road East, Suite 300
Any offsets or claims should be reported to:
(905) 338-8777 Ontario
(800) 837-0265
Fax (905) 842-0242”

6. Krones paid 13 of the 16 invoices issued by Kennedy. RPG did not receive any notice from Krones regarding any disputes, off-sets, chargebacks or claims arising out of the Edmonton or Etobicoke projects.

7. At or about the time that the three unpaid invoices were rendered, Kennedy began to experience difficulty in paying its subcontractors on the Moncton project.

8. When the Moncton project ran into difficulty, Krones stopped making payments on the Edmonton and Etobicoke invoices in a timely fashion.

9. RPG commenced an action against Krones in respect of the unpaid invoices for the Moncton project that RPG had factored.

10. Krones also commenced an action for damages against Kennedy relating to the Moncton project.

11. Krones denied liability in respect of the unpaid invoices on the grounds that it had a right to set- off due to alleged overpayments, chargebacks, and damages relating to the Moncton project. It also raised issues with respect to the validity of the assignment of the invoices by Kennedy to RPG and the validity of the invoices.

12. The Court decided in favour of RPG and granted it summary judgment in the amount of $183,172.61, plus interest, for payment of the three outstanding invoices.

THE DEFENCE OF SET-OFF

The primary defence of Krones was that it had a valid defence of set- off. In reviewing this defence, the Court referred to the legal principle of “mutuality”. In order to establish a valid claim of legal set-off, there must be mutuality which requires that the debts be between the same parties and that the debts be in the same right. The Court stated that this mutuality is lost where the debt has been assigned to another party (i.e., the Factor), unless the rights to set-off have accrued between the debtor (i.e., the Customer) and the original creditor (i.e., the Client) prior to receipt of the notice of assignment by the debtor. At the time that the accounts receivable owing by Krones to Kennedy were assigned to RPG, no right of set- off had accrued in respect of the alleged overpayments, chargebacks, and damages relating to the Moncton property. Therefore, Krones had no legal right to set-off, because the mutuality required for this defence was lost when the accounts receivable were assigned by Kennedy to RPG.

The Court also reviewed the purchase order for the Moncton project to see whether it contained a contractual right of set-off. The Court rejected this claim by Krones and found that there was no contractual right of set-off.

Finally, the Court considered the issue of equitable set-off and concluded that it was not available to Krones.

OTHER DEFENCES

In its other defences, Krones took issue with the validity of the invoices and the validity of the assignment by Kennedy to RPG. Krones argued that the notification of the assignment was limited to the invoice attached to the notification of assignment. The Court rejected this argument for three reasons:

1. This argument ignored the clear statement in the notice of assignment that “RPG has purchased and we have assigned to them all of our right, title and interest in all currently outstanding as well all future accounts receivable from your company”.

2. Each of the disputed invoices contained a stamped notification of assignment; and

3. Krones paid RPG directly for 13 of the 16 invoices. The Court also rejected a number of other arguments raised by Krones in its defence relating to the validity of the invoices.

CONCLUSIONS

In a notification factoring arrangement, a Factor needs to protect its interest in the purchased accounts receivable by giving written notice of the assignment to the Client’s Customer. According to Section 40(2) of the PPSA, the Customer may continue to pay the Client until the Customer receives notice that the accounts receivable have been assigned to the Factor. However, the PPSA does not set out a statutory form of notice, nor does the PPSA deal with any right of set- off that the Customer may claim with respect to the purchased accounts receivable. In general, a Factor can only “step into the shoes” of his Client and assert the same right that his Client has against the Customer. This means that, if the Customer has any right to claim a set-off against the accounts receivable owing to the Client, then the Factor is required to accept the reduction in payment as a result of any legitimate claim asserted by the Customer.

In order to protect its interest in the purchased accounts receivable, the Factor should send a notice of assignment, which when signed by the Customer, should accomplish the following purposes:

1. it should require the Customer to make payment on the purchased invoices directly to the Factor, instead of to the Client;

2. it should request the Customer to verify the accuracy of the purchased invoices;

3. it should eliminate the Customer’s right to claim any set-off or reduction in the amount payable on the accounts receivable in respect of the Client’s obligations arising after the delivery of the notice; and

4. It should create an enforceable direct contract between the Factor and the Customer.

Since the notification of assignment in the RPG case has been given the “judicial seal of approval”, it is recommended that this form be used by a Factor in Ontario. It is also recommended that the Factor follow the procedure referred to in the RPG case pursuant to which the Customer is requested to acknowledge and confirm the terms of the notification of assignment and return a signed copy to the Factor.

The Court in RPG also referred to the “stamped notification of assignment” on each of the disputed invoices as one of the reasons for rejecting the Customer’s defences. For this reason, it is recommended that this form of stamp also be used by a Factor in Ontario on each factored invoice before the invoice is submitted to the Customer.

If a Factor follows the above procedures, then the Factor should be able to collect from the Customer on the invoice, regardless of what issues arise between the Client and the Customer subsequent to the delivery of the notice of assignment. If the Customer refuses to acknowledge and sign the notice of assignment, then the Factor will have limited recourse against the Customer and will have to make a business decision regarding the risk involved in funding the invoice. Even if the Customer acknowledges and signs the notice of assignment, the Factor will still have to be on the alert for any future disputes between the Client and the Customer. For example, the form of notification used in the RPG case requires the Customer to notify the Factor of “any disputes or potential chargebacks” and the stamp on the invoices in this case requires the Customer to report “any offsets or claims”. If the Customer notifies the Factor about any such disputes, chargebacks, offsets, or claims, then the Factor will also have to evaluate the funding of the invoice.

A properly drafted notice of assignment will put the Factor in a stronger position to resist any reduction in payment claimed by the Customer. As a practical matter, however, the Factor should also try to confirm with the Customer prior to funding an invoice that there are no disputes between the Customer and the Client. This extra step could avoid the time and expense of litigation over the purchased accounts receivable.

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Prohibitions and restrictions on the assignment of receivables - what employers and main contractors need to know.

11 March 2019

By John Garland

The Business Contract Terms (Assignment of Receivables) Regulations 2018 (the Regulations) came into force on 31 December 2018. The Regulations apply to any term in a contract entered into on or after this date; including any contracts which are novated. A receivable is a right to be paid under a contract for the supply of goods, services or intangible assets.

The purpose of the Regulations is to void any term in a contract which prohibits or imposes a condition or other restriction on the assignment of a receivable arising under any contract. The imposition of a condition or other restriction includes any term which prevents the assignee from determining the validity or value of the receivable or their ability to enforce the receivable.

There are specific exemptions to the Regulations, the first of which is where the supplier is a large enterprise or a special purpose vehicle. A large enterprise is, broadly speaking, a company which is not an individual, an unregistered partnership, an incorporated company or limited liability partnership which qualifies as a small or medium sized company under the Companies Act 2006. A medium sized company is one that satisfies 2 or more of the following criteria:

  •  Turnover is not more than £25.9m
  •  Balance sheet total is not more than £12.9m
  •  Number of employees not more than 250

The second exclusion to the Regulations is various types of contracts, such as prescribed financial services, interests in land and contracts for the sale of shares in a business. The reference to land contracts being excluded is very interesting, and indicates that the Regulations are unlikely to apply to development agreements being procured as turnkey deals, which may be of particular interest to local authorities and registered providers.

The explanatory note to the Regulations states that a debtor's existing contractual rights of set off are not fettered by the Regulations. This upholds the long standing legal principle that existing rights are not extinguished by an assignment and that the assignee cannot be placed in a better position than the assignor would have been in.

It has become increasingly common for Small and Medium Enterprises (SME) to, where permitted, assign the receivables payments to a finance company for immediate payment, subject to a reduction in the percentage of the receivables owed. This is sometimes referred to as factoring or invoice discounting. Whilst uncommon in the construction industry, there are niche providers who do offer this solution in this market.

The Regulations have been implemented in an attempt to combat poor payment practices within businesses, to improve cash flow for SMEs and to prevent large companies prohibiting factoring or invoice discounting by SMEs as a way of improving cash flow.

This is of particular importance to the construction industry, where it is extremely common for contracting parties to either impose an absolute prohibition on assignment on all or part of a contract, or to impose restrictions on assignment.

Employers and main contractors will typically wish to restrict assignments so that they know the entity that they are dealing with at all times, and have control over which entity that might change to on any assignment. A common example of a restriction on assignment is requiring the written consent of the employer/main contractor prior to any assignment being effected.

A primary issue of the implementation of the Regulations on parties is the fettering of their rights to freely negotiate their own contractual terms. This raises the further question of whether or not the current drafting of assignment clauses needs to be amended to reflect the changes in the Regulations.

The Regulations provide that a term in a contract '...has no effect to the extent that...' it prohibits or imposes a condition or other restriction. As a result of the drafting, our view is that existing assignment clauses need not be amended, as where the Regulations are applicable the prohibition or restriction on assignment in respect of the receivables will not have effect, whereas the prohibition or restriction will have effect in respect of non-receivables.

However, to avoid any potential arguments over the construction of a clause which prohibits assignment of any part of a contract, it may be prudent for businesses who deal with SMEs on a regular basis to expressly carve out receivables from any prohibition or restriction on assignment clauses in your standard contracts or terms and conditions.

Ultimately, if your supply chain comprises a large number of SMEs, there will be nothing your organisation can do to prevent factoring arrangements being put in place. Therefore quality assurance and management may need to be implemented for works which comprise of interim payments.

In particular, queries on invoices or the value of the works actually completed should be challenged at the earliest opportunity. This will ensure that you will prevent over payments to the factoring company, and prevent being required to go through a lengthy process to reclaim any monies overpaid.

This article is taken from Building Interest - Winter 2019 .

John Garland

Senior Associate

John Garland

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What Is Accounts Receivable Financing? Definition and Structuring

Investopedia / Candra Huff

What Is Accounts Receivable Financing?

Accounts receivable (AR) financing is a type of financing arrangement in which a company receives financing capital related to a portion of its accounts receivable. Accounts receivable financing agreements can be structured in multiple ways usually with the basis as either an asset sale or a loan.

Understanding Accounts Receivable Financing

Accounts receivable financing is an agreement that involves capital principal in relation to 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.

Accounts receivable are one type of liquid asset considered when identifying and calculating a company’s quick ratio which analyzes its most liquid assets:

Quick Ratio = (Cash Equivalents + Marketable Securities + Accounts Receivable Due within One Year) / Current Liabilities

As such, both internally and externally, accounts receivable are considered highly liquid assets which translate to theoretical value for lenders and financiers. Many companies may see accounts receivable as a burden since the assets are expected to be paid but require collections and can’t be converted to cash immediately. As such, the business of accounts receivable financing is rapidly evolving because of these liquidity and business issues. Moreover, external financiers have stepped in to meet this need.

The process of accounts receivable financing is often known as factoring and the companies that focus on it may be called factoring companies. The best factoring companies will usually focus substantially on the business of accounts receivable financing but factoring in general may be a product of any financier. Financiers may be willing to structure accounts receivable financing agreements in different ways with a variety of different potential provisions.​

Key Takeaways

  • Accounts receivable financing provides financing capital in relation to a portion of a company’s accounts receivable.
  • Accounts receivable financing deals are usually structured as either asset sales or loans.
  • Many accounts receivable financing companies link directly with a company’s accounts receivable records to provide fast and easy capital for accounts receivable balances.

Accounts receivable financing is becoming more common with the development and integrations of new technologies that help to link business accounts receivable records to accounts receivable financing platforms. In general, accounts receivable financing may be slightly easier for a business to obtain than other types of capital financing. This can be especially true for small businesses that easily meet accounts receivable financing criteria or for large businesses that can easily integrate technology solutions.

Overall, there are a few broad types of accounts receivable financing structures.

Asset Sales

Accounts receivable financing is typically structured as an asset sale. In this type of agreement, a company sells accounts receivable to a financier. This method can be similar to selling off portions of loans often done by banks.

A business receives capital as a cash asset replacing the value of the accounts receivable on the balance sheet. A business may also need to take a write-off for any unfinanced balances which would vary depending on the principal to value ratio agreed on in the deal.

Depending on the terms, a financier may pay up to 90% of the value of outstanding invoices. This type of financing may also be done by linking accounts receivable records with an accounts receivable financier. Most factoring company platforms are compatible with popular small business bookkeeping systems such as Quickbooks. Linking through technology helps to create convenience for a business, allowing them to potentially sell individual invoices as they are booked, receiving immediate capital from a factoring platform.

With asset sales, the financier takes over the accounts receivable invoices and takes responsibility for collections. In some cases, the financier may also provide cash debits retroactively if invoices are fully collected.

Most factoring companies will not be looking to buy defaulted receivables, rather focusing on short-term receivables. Overall, buying the assets from a company transfers the default risk  associated with the accounts receivables to the financing company, which factoring companies seek to minimize.

In asset sale structuring, factoring companies make money on the principal to value spread. Factoring companies also charge fees which make factoring more profitable to the financier.

BlueVine is one of the leading factoring companies in the accounts receivable financing business. They offer several financing options related to accounts receivable including asset sales. The company can connect to multiple accounting software programs including QuickBooks, Xero, and Freshbooks. For asset sales, they pay approximately 90% of a receivables value and will pay the rest minus fees once an invoice has been paid in full. 

Accounts receivable financing can also be structured as a loan agreement. Loans can be structured in various ways based on the financier. One of the biggest advantages of a loan is that accounts receivable are not sold. A company just gets an advance based on accounts receivable balances. Loans may be unsecured or secured with invoices as collateral. With an accounts receivable loan , a business must repay.

Companies like Fundbox , offer accounts receivable loans and lines of credit based on accounts receivable balances. If approved, Fundbox can advance 100% of an accounts receivable balance. A business must then repay the balance over time, usually with some interest and fees.

Accounts receivable lending companies also benefit from the advantage of system linking. Linking to a companies accounts receivable records through systems such as QuickBooks, Xero, and Freshbooks, can allow for immediate advances against individual invoices or management of line of credit limits overall.

Factoring companies take several elements into consideration when determining whether to onboard a company onto its factoring platform. Furthermore, the terms of each deal and how much is offered in relation to accounts receivable balances will vary.

Accounts receivables owed by large companies or corporations may be more valuable than invoices owed by small companies or individuals. Similarly, newer invoices are usually preferred over older invoices. Typically, the age of receivables will heavily influence the terms of a financing agreement with shorter term receivables leading to better terms and longer term or delinquent receivables potentially leading to lower financing amounts and lower principal to value ratios.

Accounts receivable financing allows companies to get instant access to cash without jumping through hoops or dealing with long waits associated with getting a business  loan . When a company uses its accounts receivables for asset sales it does not have to worry about repayment schedules. When a company sells its accounts receivables it also does not have to worry about accounts receivable collections. When a company receives a factoring loan, it may be able to obtain 100% of the value immediately.

Although accounts receivable financing offers a number of diverse advantages, it also can carry a negative connotation. In particular, accounts receivable financing can cost more than financing through traditional lenders, especially for companies perceived to have poor credit. Businesses may lose money from the spread paid for accounts receivables in an asset sale. With a loan structure, the interest expense may be high or may be much more than discounts or default write-offs would amount to.

what is assignment of accounts receivable

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  3. Assignment of Accounts Receivable: Meaning, Considerations

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COMMENTS

  1. Assignment of Accounts Receivable: Meaning, Considerations

    Assignment of accounts receivable is a method of debt financing whereby the lender takes over the borrowing company's receivables. This form of alternative financing is often seen as less...

  2. Assignment of accounts receivable

    Corporate Finance Treasurer's Guidebook Cash realizable value definition What are overhead variances? Under an assignment of accounts receivable, a lender pays a borrower in exchange for the borrower assigning its receivable accounts to the lender.

  3. Assignment of Accounts Receivable

    Assignment of accounts receivable is an agreement in which a business assigns its accounts receivable to a financing company in return for a loan. It is a way to finance cash flows for a business that otherwise finds it difficult to secure a loan, because the assigned receivables serve as collateral for the loan received.

  4. Assignment of Accounts Receivable: The Essential Guide

    Assigning accounts receivable is a fairly straightforward business financing option where a company receives a loan using its outstanding invoices as collateral. It is a form of asset-based financing. In general assignment, the company uses all accounts receivable as collateral.

  5. Assignment of Accounts Receivable Journal Entries

    The assignment of accounts receivable journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting of accounts receivable assignment. In each case the assignment of accounts receivable journal entries show the debit and credit account together with a brief narrative.

  6. Assignment of Accounts Receivable

    Typically, the notice of assignment of accounts receivable is directed to an accounting department and is signed, acknowledged and returned to the factoring company without consideration of the waiver of defenses languages.

  7. What is the purpose of assigning accounts receivable?

    The purpose of assigning accounts receivable is to provide collateral in order to obtain a loan. To illustrate, let's assume that a corporation receives a special order from a new customer whose credit rating is superb. However, the customer pays for its purchases 90 days after it receives the goods.

  8. The Difference Between Assignment of Receivables & Factoring of

    Assigning your accounts receivables means that you use them as collateral for a secured loan. The financial institution, such as a bank or loan company, analyzes the accounts receivable aging...

  9. Receivables Finance And The Assignment Of Receivables

    Receivables finance, also known as accounts receivable financing, is a form of asset-based financing where a company leverages its outstanding receivables as collateral to secure short-term loans and obtain financing. In case of default, the lender has a right to collect associated receivables from the company's debtors.

  10. What is the Assignment of Accounts Receivable?

    Assignment of accounts receivable is a financing arrangement in which a company uses its accounts receivable as collateral to obtain a loan or financing from a financial institution or a lender. In this arrangement, the company "assigns" or transfers the rights to collect payments from the outstanding accounts receivable to the lender.

  11. Accounts Receivable (AR): Definition, Uses, and Examples

    Accounts Receivable - AR: Accounts receivable refers to the outstanding invoices a company has or the money the company is owed from its clients. The phrase refers to accounts a business has a ...

  12. Assignment of Accounts Receivable: Meaning, Considerations

    Assignment of user receivable is a lending agreeing whereby the borrower assigns accounts receivable for the lending institution. In exchange for all assignment of archives receivable, an borrower receives an loan for a percentage, which could may as high as 100%, of the accounts receivable.

  13. Accounts Receivable (AR) Definition, Examples, and More

    Key Points: Accounts receivable (A/R) reflects the total of credit payments owed to your business by your customers and that should be received within the next year. Accounts receivable should be recorded on both your general ledger and balance sheet. Accounts receivable is considered a liquid asset and a current asset.

  14. Assignment of accounts receivable with recourse template

    This Assignment of Accounts Receivable with Recourse Template can be used to quickly remove valuable receivables from the operating entity. Cash paid to the operating entity for the receivables is then quickly withdrawn as payments to the owner (or the holding entity) as salary, rents, loan payments, etc. Warning

  15. assigned accounts receivable definition and meaning

    assigned accounts receivable definition Accounts receivable that serve as the collateral for a loan.

  16. Assignment of Accounts Receivable

    The financial accounting term assignment of accounts receivable refers to the process whereby a company borrows cash from a lender, and uses the receivable as collateral on the loan. When accounts receivable is assigned, the terms of the agreement should be noted in the company's financial statements. Explanation

  17. Assignment of Accounts Receivable

    What is an Assignment of Accounts Receivable? a security arrangement between a lender and borrower under which the borrower agrees with the lender that the amounts owed to them by their customers ...

  18. Assignment OF Accounts Receivable

    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. Actually, assignment is a more formal type of pledging of accounts receivable.

  19. Notice of Assignment of Accounts Receivable Under the PPSA: What Every

    1. On July 14, 2005, RPG Receivables Purchase Group Inc. ("RPG") entered into a factoring agreement with its client Kennedy Automation Limited ("Kennedy"), pursuant to which RPG agreed to purchase certain of Kennedy's accounts receivable, including accounts receivable due from its customer Krones Machinery Co. Limited ("Krones"). 2.

  20. Payor Beware: Pitfalls of Accounts Receivable Assignment

    What Is a Notice of Assignment? Many types of commercial lending, including Asset Based Lending, Accounts Receivable Financing, and Invoice Factoring, involve the sale or assignment of accounts receivable. The borrower in these lending situations generally sells or assigns its accounts receivable to the lender.

  21. Prohibitions and restrictions on the assignment of receivables

    A receivable is a right to be paid under a contract for the supply of goods, services or intangible assets. The purpose of the Regulations is to void any term in a contract which prohibits or imposes a condition or other restriction on the assignment of a receivable arising under any contract.

  22. What Is Accounts Receivable Financing? Definition and Structuring

    Accounts receivable (AR) financing is a type of financing arrangement in which a company receives financing capital related to a portion of its accounts receivable. Accounts receivable...

  23. The Role of a Notice of Assignment in Invoice Factoring

    A Notice of Assignment ("NOA") is a letter sent by the factoring company ("factor") to your customers (aka "account debtors") notifying them that the ownership of your accounts receivable, or invoices, has changed hands to the factor, and payments should be made in accordance with the instructions provided.