Factoring, Assignment and Pledging Flashcards
What is a “Transferor to Factor”?
In a factoring, the transferor (original creditor) transfers the receivable to a factor (transferee, a financial instit) immediately as a normal part of business. The transferor pays the factor a fee in return for the factoror’s administration of the receivables
Who bears the cost of bad debts when factoring without recourse?
The factor (transferee) bears the cost of uncollectible accounts, but the seller (transferor) bears the cost of sales adjustments.
Who bears the costs of bad debts when factoring with recourse?
The seller (transferor) bears the cost of bad debts as well as the cost of sales adjustments.
What is the accounting treatment when factoring with recourse, as accounted for as a loan?
The transferor maintains the receivables on its books and records a loan and interest expense over the term of the agreement.
What happens when A/R are “assigned”?
The borrower assigns rights to specific accounts receivable as collateral for a loan. The lender has the right to seek payments from these receivables should the borrower default on the loan. Borrower reclasses A/R to A/R assigned, a subcategory of total A/R
What happens when A/R are “Pledged”?
Less formal than assignment. Rights to specific collateral are not noted and A/R are not reclassed. Neither the accounting for the receivables nor the loan is affected by the pledge. Footnote disclosure of the pledge is required.
