Tips For Account Receivable Pledged As Collateral

Accounts Receivable, commonly used to secure lines of credit, are normally presented as a list of trade customers or clients that owe trade debts to an entity indicating amounts owing and the number of days they have remained unpaid.

A line of credit is generally revolving credit secured by accounts payable and inventory that are monitored constantly. If collateral shortfall occurs, other fixed assets including real estate may be taken. The primary source of repayment is debt collected in the normal course of business. If one takes accounts receivable as collateral, one should mitigate the risk by excluding some of the accounts, such as intercompany accounts, from the list and examine the possibility of the following risks;