AR Financing vs. PO Financing

While these two types of financing have their similarities, they are really two totally different products. Purchase order financing involves Fast and Easy lending money to fulfill purchase orders, while accounts receivable financing involves Fast and Easy buying a company's outstanding invoices.

1. What is receivable financing?
2. What is AR interest?
3. What is the difference between the financing through assignment of receivables the factoring of receivables?
4. What is purchase order financing?
5. What are the three classifications of receivables?
6. Is a receivable a loan?
7. What is accounts receivable vs payable?
8. Is Accounts Receivable a liability or asset?
9. What is average accounts receivable?
10. How does AR factoring work?
11. How do you account for factored accounts receivable?
12. Are factoring fees considered interest?

What is receivable financing?

Accounts receivable (AR) financing is a type of financing arrangement in which a company receives financing capital related to a portion of its accounts receivable. Accounts receivable financing agreements can be structured in multiple ways usually with the basis as either an asset sale or a loan.

What is AR interest?

The current asset that represents the amount of interest revenue that was reported as earned, but has not yet been received.

What is the difference between the financing through assignment of receivables the factoring of receivables?

The primary difference between factoring and bank financing with accounts receivables involves the ownership of the invoices. Factors actually buy your invoices at a discounted rate, while banks require you to pledge or assign the invoices as collateral for a loan.

What is purchase order financing?

Purchase order finance, also known as 'PO Finance', provides funding for businesses with purchase orders to pay their suppliers and smooth out cash flow. Purchase order financing is, therefore, an effective and popular option for those businesses which need a quick and effective way to finance their purchase orders.

What are the three classifications of receivables?

Receivables can be classified as accounts receivables, notes receivable and other receivables ( loans, settlement amounts due for non- current asset sales, rent receivable, term deposits).

Is a receivable a loan?

A loan receivable is the amount of money owed from a debtor to a creditor (typically a bank or credit union). It is recorded as a “loan receivable” in the creditor's books.

What is accounts receivable vs payable?

Difference between accounts payable and accounts receivable

Whereas accounts payable represents money that your business owes to suppliers, accounts receivable represents money owed to your business by customers.

Is Accounts Receivable a liability or asset?

Accounts receivable are an asset, not a liability. In short, liabilities are something that you owe somebody else, while assets are things that you own.

What is average accounts receivable?

Average accounts receivable is the sum of starting and ending accounts receivable over a time period (such as monthly or quarterly), divided by 2.

How does AR factoring work?

Also known as accounts receivable financing, factoring is a transaction which involves selling receivables to a factoring company. The receivables factoring company pays the business owner (you) up to 97% of the value immediately. Then, the factor is paid by your customer.

How do you account for factored accounts receivable?

When a business sells accounts receivable to a factoring company on a non-recourse basis, it should be recorded in the general journal as follows:

1. Credit Accounts receivable for the amount sold.
2. Debit Cash account for the amount of cash advance received.
3. Debit Loss on factoring for the amount of fee charged by factor.

Are factoring fees considered interest?

Under a factoring agreement a company sells or assigns its accounts receivable to a factor in exchange for a cash advance. The factor typically charges interest on the advance plus a commission.