Using Accounts Receivable for Financing
Accounts receivable financing can be defined as a method of asset financing wherein a company uses the money that is owed to it by customers, also known as receivables, as security for getting additional finances. The amount that the company receives in return for this is equivalent to the reduced value of the receivables. An important factor that determines the amount of finances received by the company is how old the receivables are. Receivables that are more recent will fetch the company a higher amount compared to older receivables. This method can be a good substitute for bank financing methods. There are two ways in which accounts receivable financing can be used by a company.
Pledging Accounts Receivable
Pledging refers to using accounts receivable by the company as a security for borrowing money to manage its finances. However, one thing that must be remembered in this case is...
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