Factoring Accounts Receivable

Accounts receivable may be used in one or another way to help raise short-term capital: They can be sold to a factoring company (or factor). A factor is a firm that specializes in buying other firms' accounts receivable. The factor buys the accounts receivable for less than their face value, butit collects the full dollar amount when each account isdue. The factor's profit is thus the difference between the face value of the accounts receivable and what the factor has paid for them.

Even though the selling firm gets less than face value for its accounts receivable, it does receive needed cash immediately. Moreover, it has shifted both the task of collecting and the risk of nonpayment to the factor, which now owns the receivables. Generally, customers whose accounts receivable have been factored are given instructions to make their payments directly to the Factor.

 

I. COMPREHENSION

A) Enlarge on:

1.Identifythe assets that are most commonly used for short-term financing.

2. Specify the advantages and disadvantages of loans secured by inventory.

3. Explain the difference between floor planning and other types of secured short-term financing.

4. Explain the procedure of using loans secured by receivables.

5. What is the importance of the operation called “Factoring Accounts Receivable”?

B) Say if the statements are true or false:

1. The factor's profit is thus the difference between the actual value of the accounts receivable and what the factor has paid for them.

2. The major difference between floor planning and other types of secured short-term financing is that the borrower does not maintain control of the inventory.

3. However, inventories and accounts receivable are the assets that are most commonly used for short-term financing.

4. All three types of inventory may be pledged as collateral for long-term-term loans.

5. Generally, customers whose accounts receivable have been factored are given instructions to make their payments directly to the Factor.

6. To ensure that the lender is repaid a portion of the loan when the merchandise is sold, the borrower will occasionally check to ensure that the collateral is still in the borrower's possession.

7. Without this receipt, the public warehouse will not release the merchandise.

 

II. FOCUS ON GRAMMAR

Insert prepositions:

1.They arise primarily ….. trade credit and are usually due … less than sixty days. 2. Then whenever the borrowing firm collects ….. a customer whose account has been pledged as collateral, the money must be turned over ….. the lender as partial repayment of the loan. 3. In addition ….. the interest …. the loan, the borrower must also pay for storage in the public warehouse. 4. Yet, if a business cannot obtain enough capital via unsecured short-term financing, it must put ….. collateral to obtain the additional financing it needs. 5. However, lenders prefer the much more salable finished goods ….. the other inventories. 6. Moreover, it has shifted both the task ….. collecting and the risk of nonpayment … the factor, which now owns the receivables.

 

III. VOCABULARY PRACTICE

A) Match the words with their definitions:

1. A firm that specializes in buying other firms' accounts receivable.

2. Amounts that are owed to a firm by its customers.

3. An alternative approach to notify the borrower's credit customers to make their payments directly to the lender.

4. A method of financing where the title to merchandise is given to lenders in return for short-term financing.

 

Accounts receivable, floor planning, factor, and notification plan

B) Find English Equivalents in the text:

cel mai des întrebuinţate/ используемые чаще всего

firmele asigurate financiar/ финансово-стабильные фирмы

a ridica o întrebare/ поднять вопрос

într-un mod sau altul/ по-разному

creanţe/ счета к получению

datorii/ долги

comerciant de dispozitive/ продавец бытовой техники

valoare nominală/ номинальная стоимость

drept de retenţie asupra mărfii/ право собственности на товар

termenul de valabilitate a contului expiră/ срок действия счёта заканчивается

C) Supply synonyms (a-e) and antonyms (f-j):

a) agents = f) full amount of =

b) sound (financially) (adj) = g) unfinished goods =

c) through smth.= h) accounts payable =

d) marketable (adj) = i) payment =

e) to transfer = j) from time to time =