Puerto Rico Accounts Receivable — Contract to Sale refers to a financial arrangement where a company in Puerto Rico sells its accounts receivable, which are unpaid customer invoices, to a financial institution or a factor. This allows the company to convert its account receivables into immediate cash flow, improving liquidity and reducing the risk of bad debts. This method of financing is beneficial for businesses in Puerto Rico as it helps them maintain a stable cash flow while avoiding the burden of managing late payment collections. There are several types of Puerto Rico Accounts Receivable — Contract to Sale, each designed to meet specific business needs: 1. Recourse Factoring: Under this type, the company remains responsible for the repayment of sold accounts receivable in case of non-payment by the customers. Although the factor assumes the credit risk, the business retains ultimate liability. 2. Non-Recourse Factoring: In this scenario, the financial institution assumes full responsibility for the repayment of sold accounts receivable even if the customers fail to pay. This type offers higher security to businesses but may come with higher fees. 3. Spot Factoring: Spot factoring allows businesses in Puerto Rico to selectively sell individual invoices to a factor. It provides flexibility without the need to commit to long-term contracts, making it suitable for companies with inconsistent cash flow. 4. Whole Ledger Factoring: This type involves selling the entire accounts receivable ledger to a factor. It provides a comprehensive solution for businesses looking to outsource their accounts receivable management and facilitates sustained financing. 5. Recourse with Notification Factoring: This type is similar to recourse factoring, but it allows the company to remain in communication with its customers, informing them of the account sale. It ensures transparency in the financing process and helps maintain customer relationships. Puerto Rico Accounts Receivable — Contract to Sale provides an effective alternative for businesses in Puerto Rico to bridge the gap between invoice generation and payment receipt. By leveraging this financing method, companies can unlock the value of their accounts receivable, enhance working capital, and focus on growth and operational efficiency.
Puerto Rico Accounts Receivable - Contract to Sale
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Receivables can be classified into accounts/trade receivable, notes receivable, and other receivables.
An accounts receivable purchase agreement is a contract between a buyer and seller. The seller sells receivables to get cash up front, and the buyer has the right to collect the receivables from the original customer.
Contract Receivables means, during any period of determination, gross accounts receivable of Borrower and its Subsidiaries created from the sale to customers, on an installment payment basis, of membership contracts for the use of fitness or exercise centers, other than Receivables Program Receivables.
An example of accounts receivable is a furniture manufacturer that has delivered furniture to a retail store. Once the manufacturer bills the store for the furniture, the payment owed is recorded under accounts receivable. The furniture manufacturer awaits payment from the store.
The key difference between Contract asset and Account receivable is its conditionality i.e. Contract Asset is recognized in the Financial Statements when the right to receive the payment is conditional upon something other than just passage of time (having conditional right to receive payment).