Accounts Receivable (A/R) Discounted

Filed Under » , ,
Dictionary Says

Definition of 'Accounts Receivable (A/R) Discounted'

Outstanding invoices representing money owed to a creditor which the firm/creditor sells to a buyer for less than face value, typically to quickly raise capital and improve cash flow. The buying firm - also referred to as a "factor" - purchases the financial obligation at a discounted rate providing the selling firm with immediate cash. However, the sale is undertaken without recourse, meaning that the factor assumes full responsibility for collecting the money owed in order to recoup its financial layout for the account.
Investopedia Says

Investopedia explains 'Accounts Receivable (A/R) Discounted'

Accounts receivables are often sold at a discount in order to mitigate the risk that the debtor will not satisfy the obligation. The discount arises because the factor assumes the underlying risk of the receivables and must be compensated for the delayed inflow of funds.

Previously only large firms that could meet minimum threshold requirements could enter into a relationship with a factoring firm (typically a large bank) to sell their receivables and obtain much-needed cash, and often with recourse. Today, medium- and small-sized firms operating in virtually all industries (i.e. IT firms, manufacturers, even hospitals) can find ways to sell their A/Rs for a discounted rate to individual factoring firms or through factoring broker intermediaries.

Articles Of Interest

  1.

    Small Business: Speed Up Receivables To Avoid A Cash Crunch

    Waiting for customers to pay can be a losing game. Look to factoring for quicker cash.

  2. Dynamic Current Ratio: What It Is And How To Use It

    Learn why this ratio may be a good alternative to the current, cash and quick ratios.

  3. What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.

  4. Understanding The Cash Conversion Cycle

    Find out how a simple calculation can help you uncover the most efficient companies.

  5. Cash Flow On Steroids: Why Companies Cheat

    Pressure to be the best can sometimes push corporations to cheat. Learn how they do it and how to spot it.

  6. Distressed Debt An Avenue To Profit In Corporate Bankruptcy

    Use debt securities to attack bankrupt companies and scavenge them for profits.

  7. The Impact Of Recession On Businesses

    Find out how this economic cycle affects both small and big business.

  8. Pay Attention To The Proxy Statement

    Don't overlook this overview of a company's well-being.

  9. Explaining Amortization In The Balance Sheet

    Amortization is important to account for intangible assets. Read to find out more about amortization.

  10. Understanding Off-Balance Sheet Financing

    For anyone who was invested in Enron, off-balance sheet (OBS) financing is a scary term. Off-balance sheet financing means a company does not include a liability on its balance sheet. It is ...
comments powered by Disqus
Marketplace
Hot Definitions

  1. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  2. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  3. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  4. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  5. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...

  6. Bailment

    The contractual transfer of possession of assets or property for a specific objective.
Trading Center