What are 'Asset Sales'

An asset sale is when a bank sells its receivables to another party. Accounts receivable are kept as an asset on a balance sheet. Asset sales are often accomplished through the sales of individual loans or pools of whole loans. Asset sales are nonrecourse sales that are also sometimes accomplished through the securitization of the bank's receivables. These types of transactions are used to mitigate asset-related risk, obtain free-cash flows, for liquidation requirements, and other reasons.

BREAKING DOWN 'Asset Sales'

An asset sale occurs when a bank sells its receivables to another party. Asset sales are a complex transaction from an accounting perspective. An asset sale is classified as such if the seller gives the buyer control of the property after payment is made. There cannot be further recourse to the buyer. If recourse were allowed, this characteristic will cause the transaction to be regarded as financing which would not give the bank the desired result of increased free cash flows.

RELATED TERMS
  1. Non-Recourse Sale

    Non-recourse sale refers to the sale of an asset in which the ...
  2. Recourse

    A recourse is a legal agreement which gives the lender the right ...
  3. Limited Recourse Debt

    A limited recourse debt is debt in which the creditor has limited ...
  4. Asset Base

    Asset base refers to the underlying assets giving value to a ...
  5. Long-Term Assets

    Long-term assets are the value of a company's property, equipment ...
  6. Asset Financing

    Asset financing uses a company’s balance sheet assets, including ...
Related Articles
  1. Investing

    What is Securitization?

    Securitization is the process of converting an asset, or group of assets, into a marketable security. Often times, the securitized assets are divided into different layers, or tranches, tailored ...
  2. Investing

    Understanding financial liquidity

    Financial liquidity comes into play for companies, your personal finances, investing, and the financial markets. However, assets and investments have varying liquidity levels.
  3. Investing

    Asset Turnover Ratio

    Investopedia explains: The asset turnover ratio is a measure of a company's ability to use its assets to generate sales or revenue, and is a calculation of the amount of sales or revenue generated ...
  4. Investing

    What Is A Short-Sale Property & How Does It Work?

    A short sale is an alternative to foreclosure whereby indebted owners get permission from a bank to sell their house for less than amount of the mortgage.
  5. Investing

    Cash Flow Lending Vs. Asset-Based Lending

    When companies need financing, they rely on two primary forms of lending: cash flow-based and asset-based lending. We look at the pros and cons of each.
  6. Investing

    The Ins And Outs of Seller-Financed Real Estate Deals

    There's more than one way to buy or sell a house. Seller financing presents yet another unique option.
  7. Insights

    How Investment Banks Make Money

    Take a look at methods through which investment banks make money, such as investment research, asset management, and brokerage and underwriting services.
  8. Investing

    Arm's Length Transaction

    An arm’s length transaction describes business deals in which the buyer and seller act independently and with no interest in the other’s benefit.
RELATED FAQS
  1. How do fixed assets and current assets differ?

    Current assets can be converted into cash in less than one year, while fixed assets are long-term physical assets. Read Answer >>
  2. How should investors interpret accounts receivable information on a company's balance ...

    Analyze accounts receivable information on a company's balance sheet carefully. Receivables offer confidence of future cash ... Read Answer >>
  3. How do current assets and fixed assets differ?

    Current assets are short-term assets that are used up within one year. Fixed assets are physical assets and have a life of ... Read Answer >>
  4. What are liquid assets, and why are they beneficial to a business?

    Learn the difference between liquid and fixed assets, and how a company's liquidity affects its financial health. Read Answer >>
  5. Determining a Firm's Percentage of Credit Sales

    Find out where to look for information about determining a company's percentage of credit sales. Read Answer >>
Trading Center