Receivables Financing

Receivables Financing is a mechanism for selling the accounts receivables of a firm at a discount for the purpose of converting it to cash sooner than the designated dates when such accounts receivables become due and demandable. (Eugene Brigham & Joel Houston; 1998, Fundamentals of Financial Management) Pledging of Accounts Receivables Pleading of Accounts Receivables is the act of putting accounts receivables up as security for a loan.


It is characterized by the fact that the lender not only has a claim against the receivables but also has recourse to the borrower – this means that if the firm that bought the goods does not pay, the selling firm must take the loss. Therefore the risk of default on the pledged accounts receivables remains with the borrower. The buyer of the goods is not ordinarily notified about the pledging of the receivables. (Eugene Brigham & Joel Houston; 1998, Fundamentals of Financial Management) Factoring of Accounts Receivables Factoring of Accounts Receivables is the act of selling the accounts receivables.

It involves the purchase of accounts receivables by the lender, generally without recourse to the borrower, which means that if the purchaser of the goods does not pay for them, the lender rather than the seller of the goods takes the loss. Under this arrangement, the buyer of the goods is typically notified of the transfer and is asked to make payments directly to the financial institution, also called the factor. (Eugene Brigham & Joel Houston; 1998, Fundamentals of ansoff matrix samsung) Factoring is illustrated as follows: Source:  Presentation of Mr. Richard Worthy, President of Metro Factors, Inc.

for the World Bank in Warsaw, Poland in October 2003 (http://www. google. com. ph/search? hl=tl&q=Factoring+Law+and+Practice+by+Freddy+Salinger&btnG=Hanapin+sa+Google&meta) Export Factor On the basis of the so-called Two-Factor system, the export factor is the institution that facilitates the export transaction of the supplier in the supplier’s country. The export factor as an institution provides financing, credit management, sales ledger accounting, or a combination of these services for exporters. (International Factors Group website; www. ifgroup. com/2factor-definition. asp) Import Factor

On the basis of the so-called Two-Factor system, the import factor is the institution that handles credit cover and collection in the buyer’s territory. The import factor as an institution undertakes the debtor credit rating, the collection of payments and if necessary, the legal action against the buyer. Being present in the country of the importer, speaking the same language and understanding the local customs and habits therein, the import factor is in the best position to provide professional and effective services. (International Factors Group website; www. ifgroup. com/2factor-definition. asp)