Sales of Receivables
Sales of receivables refers to the quantity billed by a firm or commercial enterprise to its customers when it gives out items or services to them. At this point no money is paid by the customers however only an invoice is generated by way of the firm. This invoice extends the period allotted for payment by the customers. Sales of receivables approves firms or businesses to accumulate capital without having to wait for payment with the aid of debtors or acquiring business loans. Once a factoring employer comes in, there are additional services they provide such as running credit exams on new clients and generating monetary reports.
Main Form of Income: Factoring
The main form of income of receivables is factoring. This analogy alludes to the selling of receivables by the company, that is, invoices to a third party called ‘factor'. The receivables are evaluated with regard to how they will be recovered upon the payment of the fee as agreed between the parties transacting. Factoring allows businesses to obtain immediate cash based on the future income. The future income could result from account receivables or business invoice. This ensures that a business does not run out of cash that could derail its daily operations.
Recourse and Without Recourse
Sori (2009) further affirms that factoring takes two dimensions. A receivable may be sold with recourse or without recourse. Instances of recourse occur when the transferee is allowed to receive the payment from the transferor of the particular receivables. This scenario is observed under situations where the debtor may fail to pay a due debt, existence of prepayment effects and instances of eligibility defects arising from adjustments on the receivables. In circumstances of sale with recourse, the seller guarantees payment to the purchaser in cases of default by debtor. In the second form, payment without recourse, no responsibility is shouldered by the seller for any event of losses associated with the sale of the receivables.
Secured Borrowing
Secured borrowing refers to the act of placing a collateral that binds the borrower and creditors. An agreement is made that if the borrower defaults in payment, the creditor takes ownership of the property. This type of borrowing allows lenders to give their customers relatively higher amounts of loan since the loan is given against a property or collateral. Secured loan therefore refers to the money one borrows that is secured against asset they own, usually a home. Distinct forms of secured borrowing occur. Let us focus on home equity loan, mortgage and debt consolidation.
Mortgage
Sori (2009) defines mortgage as a legal agreement that conveys the conditions and rights of ownership on assets or property by its owners to the lenders as security for loan. The agreement however becomes void when the loan is fully repaid.
Home Equity Loan
The second form of secured borrowing entails home equity loan. This aspect is also known as second mortgage. It allows homeowners to borrow loans against their equity in the home. The home becomes the collateral against which the owner is issued with a loan.
Debt Consolidation
Finally, debt consolidation is another important form of secured borrowing. This analogy alludes to the taking out of a one large loan to pay-off many others. Usually the new loan has longer payback period and its monthly payment is lower. It is also referred to as consolidation loan.
Work Cited
Sori, Zulkarnain Muhamad. "Accounting information systems (AIS) and knowledge management: a case study." American Journal of scientific research 4.4 (2009): 36-44.
