CHAPTER 8

RECEIVABLE
FINANCING
Pledge, assignment and
factoring
RECEIVABLE FINANCING
•Receivable financing is the
financial flexibility or capability of
an entity/company to generate
cash out of its receivables.
 COMMON FORMS OR RECEIVABLE
FINANCING
PLEDGING
•Refers to borrowing of money
from the bank or any financial
institution in which receivables in
general are used as COLLATERAL.
 COMMON FORMS OR RECEIVABLE
FINANCING
ASSIGNMENT
•Is a more formal borrowing
arrangement in which the
specific receivables are
identified and used as a security.
 COMMON FORMS OR RECEIVABLE
FINANCING
FACTORING
•Involves the sale of receivable to a
finance company which is called a
factor. The factor or buyer assumes the
risk of collectivity and generally
handles the billing and collection
function.
 COMMON FORMS OR RECEIVABLE
FINANCING
DISCOUNTING OF NOTES RECEIVABLE

• Sale of the note to a 3 party

rd

usually a bank.
PLEDGING (HYPOTHECATING OF
RECEIVABLES
•Refers to borrowing of money from the
bank or any financial institution in which
receivables in general are used as a
collateral or security for a loan. Since
receivables in general are use as
collateral, pledging is sometimes called
general assignment.
On the part the receivables
• As is pa din! It mean wala dapat galawin.
• A/R xxx
• Sales xxx
• Sales return xxx
• A/R xxx
• Sales discount xxx
• Cash xxx
• A/R xxx
LOANS
a. Borrowing of loan
1. Interest not deducted in advance.
Entry
• Cash xxx
• Loan payable xxx
2. Interest deducted in advance
• Cash xxx
• Discount on loan
Payable xxx
•
LOANS
a. Payment of Interest/Amortization of Discount
A. Entry
• Interest Expense xxx
• Cash xxx

B. Entry
• Interest Expense
xxx
• Discount on Loan Payable xxx
 March 1 Cash 2,000,000
Note payable-Bank
2,000,000
April 1 Cash 980,000
Sales discount 20,000
Accounts receivable
1,000,000
June 1 Cash 2,000,ooo
Accounts receivable
2,000,000
Sept. 1 Note payable-bank 2,000,ooo
Interest expense
(12%x2m2x6/12)
120,000
Cash
2,120,000
ASSIGNMENT OF ACCOUNTS RECEIVABLE

•Is more formal borrowing arrangement

in which the specific receivables are
identified and used as security. The
assignor or borrower transfers its rights
in same of its accounts receivable to a
lendor or assignee in consideration for a
loan.
ASSIGNMENT OF ACCOUNTS RECEIVABLE

•Actually, assignment is a more formal

type of pledging of accounts
receivable.
•It is secured borrowing evidenced by a
financing agreement and a promissory
note both of which the assignor signs.
CHARACTERISTICS OF AGREEMENT
1. The loan is at a specified
percentage of the face value of
the collateral. Interest and
service fees are charged to the
assignor.
CHARACTERISTICS OF AGREEMENT
2. The debtors are occasionally
notified to make payments to
the assignee but most of the
assignments are not on a
notification basis.
CHARACTERISTICS OF AGREEMENT
3. Assigned accounts are segregated
from other accounts. The loan
payable should be deducted from the
balance of A/R assigned to determine
the equity in assigned accounts
receivable.
 Dr. Cr.

Jul. 1 Accounts receivable-assigned 500,000

Accounts receivable 500,000

1 Cash (400,000-10,000) 390,000

Service charge (2%x500,000) 10,000

Note payable-bank 400,000

Aug. 1 Cash 330,000

Accounts receivable-assigned 330,000

1 Interest expense (1%X400,000) 4,000

Note payable- bank 326,000

Cash 330,000

Sept. 1 Cash 170,000

Accounts receivable-assigned 170,000

1 Interest expense (1%x74,000) 740

Note payable- bank 74,000

Cash 74,740
FACTORING
•Involves the sale of receivables to a
financing company, which is called the
factor.
•The factor assumes the risk of collectivity
and generally handles the billing and
collection function. The sale of receivables
is on without recourse, notification basis.
 2 forms in factoring
CASUAL FACTORING- not always. Ex. Critical cash position.
Cash
xxx
Allowance for doubtful accounts xxx
Loss on factoring
xxx
Receivable
Sales returns from factor
and allowance xxx
xxx
accounts receivable
Receivable factor
Cash
xxx xxx
xxx
 2 forms in factoring
Factoring as a continuing agreement-without recourse
Cash
xxx
Allowance for doubtful accounts xxx
Interest expense
xxx
Factoring fee
xxx
*Sales returns and allowance xxx
*Receivable from
Receivable factor
factor
*Cash
xxx xxx
xxx
 2 forms in factoring
Factoring as a continuing agreement-with recourse.
Cash
xxx
Allowance for doubtful accounts xxx
Interest expense
xxx
Factoring fee
xxx
Receivable from factor xxx
Recourse liability obligation
Loss on recourse xxx
xxx
 2 forms in factoring
CASUAL FACTORING- not always. Ex. Critical cash position.
Cash
xxx
Allowance for doubtful accounts xxx
Loss on factoring(add up) xxx
Receivable from factor xxx
accounts receivable
xxx
Recourse liability
Recourse liability
xxx
cash xxx
CREDIT CARD
• A credit card is a plastic card which enables the
holder to obtain credit up to a predetermined limit
from the issuer of the card for the purchase of
goods and services.

• The credit card has enabled retailers and other

businesses to continue to sell goods and services
where the customers obtain possession of the
goods immediately but do not have to pay for the
goods for about one month.