| Investopedia: "Receivables is an asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed to the company, even if the debts are not currently due. Receivables are recorded as an asset by the company because it expects to receive payment for the outstanding amounts soon. Long-term receivables, which do not come due for a significant length of time, are recorded as long-term assets on the balance sheet; most short-term receivables are considered part of a company's current assets." (credit: investopedia.com) |
When a company outgrows its limited working capital, there is an immediate need for factoring receivables, i.e., a tool that provides the opportunity to expand and speed cash flow. He does this by selling his receivables to the factor and drawing an advance prior to the customer making payment. This can speed his cash flow by more than 30 days.
STAR Finance Success Story:
WHOLESALER OF NAME BRAND APPAREL
An experienced salesman with excellent contacts in the retail market had the opportunity of forming his own company to wholesale excess branded merchandise for a major manufacturer. Unfortunately he had limited funds, and the manufacturer would only sell him the product on cash terms. The salesman approached STAR through the efforts of a broker. STAR funded all of the entrepreneur's purchases that were pre-sold to credit worthy retailers. STAR also factored the resulting receivables.
| Investorwords: "Factoring is the selling of a company's accounts receivable, at a discount, to a factor, who then assumes the credit risk of the account debtors and receives cash as the debtors settle their accounts. also called accounts receivable financing." (credit: investorwords.com) |
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