Accounts receivable may be used as a source of financing by
A) pledging the receivables as loan collateral.
B) "factoring" the receivables to a finance company.
C) selling securities backed by the receivables.
D) All of these options are correct.

Question

Quizplus · Accepted Answer

All three options listed (loan collateral, factoring, and selling securities backed by receivables) are viable ways to use accounts receivable as a source of financing. Pledging receivables as collateral can allow a company to secure a loan with a favorable interest rate. Factoring receivables involves selling them to a finance company at a discount in exchange for immediate cash, which can help improve cash flow. Selling securities backed by receivables involves packaging the receivables into bonds or other securities that are then sold to investors.

Accounts Receivable May Be Used as a Source of Financing