Discounting of accounts receivable

Discounting of accounts receivable,

Definition of Discounting of accounts receivable:

  1. Obtaining a working capital (short-term) loan against the discounted value (usually 80 to 90 percent of the invoiced amount) of accounts receivable (A/R) that meet the lenders creditworthiness criteria. The lender does not buy the A/R but only uses them as a collateral. In case of a default, however, the lender has the right to collect direct from the borrowers debtors.

  2. Selling A/R at a discounted value (usually 70 to 85 percent of the invoiced amount) to a factor who then becomes responsible for collecting them. See also factoring.

Meaning of Discounting of accounts receivable & Discounting of accounts receivable Definition