What is the difference between pledging, discounting, assigning and factoring of account receivab?

Expert Solution

Difference is explained as follows:

Pledging of Accounts Receivable	Discounting of Accounts Receivable	Assigning of Accounts Receivable	Factoring of Accounts Receivable
Pledging is basically using accounts receivables as collateral for the purpose of taking business from financial Institutions	Under Discounting the Accounts receivable are discounted ,normally at 75% to 90% of the total value, from financial institution.	Under Assigning of Accounts receivable a business enters into a formal agreement with financial institution and assigns its accounts receivable to obtain a loan amount. Ownership of Receivable are not transferred to financial institution. The amount of loan received in case of Assignment can be as high as 100% of the value depending upon the credibility of business and quality of receivables in question.	Under Factoring of accounts receivable a business sell its accounts receivable for cash to another entity known as Factor at a discount. The discount is basically the cost the factor charges for providing early cash before the due date of Accounts receivable to business.
Ownership of Accounts receivable remains with the company in this case.	Ownership remains with business, however in case of non payment on due date the financial institution takes ownership and collect directly from the customer	Ownership of the account receivable assigned to financial institution remains with the business and incase of nonpayment by customer on due date, business will have to make good the unpaid amount to financial institution.	Factoring can be either with recourse or without recourse. Under with recourse ,any amount unpaid will be borne by the business to the factor. Under without recourse factor will have to bear the loss in case any amount remains unpaid or goes bad at the time of collecting dues on due date.
Collection of Accounts receivable on due dates is the responsibility of the company and not the financial institution to which it is pledged			Collection of accounts on due date is done by factor.

ekkarill92 answered 1 year ago

What is the difference between selling on account versus cash?

What is the significant difference between the current account and the capital account, when the sum...

What is the significant difference between the current account and the capital account, when the sum of the two accounts must equal 0? Less-Developed Countries (LDCs) are caught in a vicious circle of poverty. For output to increase, they must build up capital. To build up capital, they must save and consume less than what they are producing. However, because they are poor, they have little or no extra output available for savings as it must go toward feeding and...

a. What is the relationship between discounting and compounding? b. What is the relationship between the...

a. What is the relationship between discounting and compounding? b. What is the relationship between the present-value factor and the annuity present-value factor? c. What will 4,400 invested for 13 years at 12 percent compounded annually grow to? ii. How many years it will take 570 to grow to 2727.22 if it is invested at 11 percent compounded annually? iii. At what rate would 1500 have to be invested to grow to 6339.35 in 11years?

Describe the difference between discounting and interest, referring to the way we have talked about it...

Describe the difference between discounting and interest, referring to the way we have talked about it in class. Specifically use this example: A company is looking to purchase an item worth 10k today. The same item can be purchased 3 years later for 10k. Why is the second option more desirable, and how much more desirable is it if your cost of capital is 5%?

The technical differences between tax law and account are: a. There is no difference in the...

The technical differences between tax law and account are: a. There is no difference in the way income and expendicture is dealt with by tax law and the under the principles of accounting. b. Not all receipts are recognised for tax purposes, Income tax law excludes some income and expenses for policy reasons, it ignores some transactions on the basis of ant-avoidance provisions and timing rules differ in income tax law and under accounting principles c. Tax law is based...

1) What is meant by Factoring of Accounts Receivables? 2) List 3 advantages of Factoring 3)...

1) What is meant by Factoring of Accounts Receivables? 2) List 3 advantages of Factoring 3) List 3 disadvantages of Factoring 4) List 3 Factors in the USA. 5) If you are a company that factors your receivables, would you prefer "recourse" or "non-recourse" factoring? Explain your choice.

What could account for the small difference in pO2 between the pulmonary capillaries and systemic arterial...

What could account for the small difference in pO2 between the pulmonary capillaries and systemic arterial blood?

What is compounding? What is discounting?

What is the difference between a Eulerian Path and Circuit? What is the difference between a...

What is the difference between a Eulerian Path and Circuit? What is the difference between a Hamiltonian Path and Circuit? Is the image below Eulerian or Hamiltonian, Path or Circuit? How did you determine your answer?

What is the difference between a refrigerator and a heat pump? What is the difference between...

What is the difference between a refrigerator and a heat pump? What is the difference between a refrigerator and an air conditioner? Define the coefficient of performance of a refrigerator in words. Can it be greater than unity? Check the specification of refrigerator or air-conditioner at your home. See if you can obtain COP of the machine. A heat pump that is used to heat a house has a COP of 2.5. That is, the heat pump delivers 2.5 kWh...

Question