Alabama Accounts Receivable — Assignment is a financial arrangement commonly used in business and commercial transactions. Accounts Receivable Assignment allows a business entity to assign or transfer its accounts receivable, which are the amounts owed to the business by its customers, to a third party, typically a financial institution or a factoring company. This transaction provides immediate liquidity to the business, as it converts the accounts receivable into cash. In Alabama, Accounts Receivable Assignment is regulated by the Uniform Commercial Code (UCC), specifically Article 9. This code governs the rights and obligations of the parties involved in the assignment of accounts receivable. It ensures that the assignment is valid, enforceable, and creates a legal relationship between the assignor (the business) and the assignee (the third party). There are different types of Accounts Receivable Assignment in Alabama, including: 1. Traditional Assignment: In this type, the business assigns its accounts receivable to a financial institution, usually a bank. The bank provides immediate cash to the business, often at a discounted value. The bank then collects the assigned receivables from the customers and retains the collected amounts to recover the advance made to the business. 2. Factoring: Factoring is another form of Accounts Receivable Assignment commonly used in Alabama. In this arrangement, a factoring company purchases the accounts receivable from the business at a discounted value. The factoring company assumes the responsibility of collecting the receivables from the customers and bears the risk of non-payment. The business receives immediate cash for the assigned receivables, allowing it to meet its financial obligations or invest in growth opportunities. 3. Non-Recourse Assignment: This type of assignment provides additional protection to the business as the assignee, usually a factoring company, takes on the risk of non-payment. If a customer fails to pay the assigned receivables, the business is not held liable for the uncollected amount. While the factoring company assumes the risk, the discount on the assigned receivables is often higher compared to other forms of assignment. Accounts Receivable Assignment in Alabama offers several benefits to businesses. It enables improved cash flow by converting accounts receivable into readily available funds, assisting in day-to-day operations, and ensuring timely payments to suppliers, employees, and other stakeholders. The assignment of receivables also transfers the collection responsibility and associated risks to the assignee, freeing up the business from the administrative burden of chasing payments and handling collections. In conclusion, Alabama Accounts Receivable Assignment is a financial arrangement governed by the UCC that allows businesses to transfer their accounts receivable to third parties in exchange for immediate cash. Various types of assignments, such as traditional assignment, factoring, and non-recourse assignment, provide businesses with flexibility and financial stability. By leveraging Accounts Receivable Assignment, Alabama businesses can optimize their cash flow, meet financial obligations, and focus on growth.
Alabama Accounts Receivable - Assignment
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FAQ
What are the journal entries for assigning Accounts Receivable as collateral for a loan? The entry to record assignment of Accounts Receivable as collateral would be a credit to cash, and a debit to assign Accounts Receivable. The cash account is debited because the company gave up the assigned receivables.
Assignment of accounts receivable is a lending agreement whereby the borrower assigns accounts receivable to the lending institution. In exchange for this assignment of accounts receivable, the borrower receives a loan for a percentage, which could be as high as 100%, of the accounts receivable.
Example of the Assignment of Accounts Receivable ABC Corp. approaches XYZ Bank to obtain financing using its accounts receivable as collateral. XYZ Bank agrees to provide a loan of 85% of the total accounts receivable value, which amounts to $170,000 (85% of $200,000).
In the accounts receivable assignment process, a company assigns receivables to a lending institution to borrow money. The borrower pays interest plus additional fees. The borrowing company retains ownership of the accounts receivable and collects payment from its customers.
Assignment of receivables would mean sale of the lease rentals, not the asset. In that case, the leased asset still remains the property of the assignor ? that is, the assignor has retained the residual interest in the asset. However, it would be different if the lessor sells the asset that has been leased out.
How to Set Up Accounting for Factoring Receivables Create an account for factored invoices. In your Chart of Account, create a liabilities account just for factored invoices. ... Create an account for factoring fees. ... Create an invoice. ... Record a deposit. ... Record the fee. ... Record the received payment. ... Apply payment to loan.
Firstly, factoring is a financial service of selling and purchasing, which implies consideration, unlike assignment, which may take place either with or without consideration. In addition, non-matured or future accounts receivable can be subject to factoring.
What is the appropriate treatment for receivable assignment transaction? In a receivables financing transaction, the assignment of the debt by the seller to the financier is treated as a true sale: it does not secure payment or performance of an obligation.