Assignment Of Accounts Receivable

AAA

DEFINITION of 'Assignment Of Accounts Receivable'

A lending agreement, often long term, between a borrowing company and a lending institution whereby the borrower assigns specific customer accounts that owe money (accounts receivable) to the lending institution. In exchange for assignment of accounts receivable, the borrower receives a cash advance for a percentage of the accounts receivable. The borrower pays interest and a service charge on the advance.

INVESTOPEDIA EXPLAINS 'Assignment Of Accounts Receivable'

If the borrower retains ownership of the accounts, then the borrower continues to collect the accounts receivable and passes the payments on to the lender. Since the borrower retains ownership, he also retains the risk that some accounts receivable will not be repaid. In this case, the lending institution may demand payment directly from the borrower. This arrangement is called assignment of accounts receivable with recourse. Assignment of accounts receivable should not be confused with pledging or factoring of accounts receivable.

RELATED TERMS
  1. Full Recourse Debt

    A guarantee that no matter what happens, the borrower will repay ...
  2. Accounts Receivable - AR

    Money owed by customers (individuals or corporations) to another ...
  3. Assignment

    1. The transfer of an individual's rights or property to another ...
  4. General Ledger

    A company's main accounting records. A general ledger is a complete ...
  5. Finance

    The science that describes the management, creation and study ...
  6. Non-Recourse Finance

    A loan where the lending bank is only entitled to repayment from ...
Related Articles
  1. Small Business: Speed Up Receivables ...
    Entrepreneurship

    Small Business: Speed Up Receivables ...

  2. A Look At Accounting Careers
    Personal Finance

    A Look At Accounting Careers

  3. Intangible Assets Provide Real Value ...
    Markets

    Intangible Assets Provide Real Value ...

  4. What is the difference between a non-recourse ...
    Investing

    What is the difference between a non-recourse ...

comments powered by Disqus
Hot Definitions
  1. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  2. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  4. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  5. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  6. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
Trading Center