Among the established mechanisms that the business sector recourses to in the conduct of transactions is receivables financing. Thanks to receivables financing, there has been increased liquidity in the trading market. This, then, has enabled the trading parties to increase the volume of their transactions, to speed up the turnover period of their investment, and to have the available option of financing additional or new commercial ventures.
Indeed, it is largely due to receivables financing that huge amounts of capital that would have been locked up and unavailable – due to packaged credit lines and issued invoices that could not yet be collectible until the end of the stipulated terms – become ready to be reinvested in another business deal. Receivables financing has given credit access to trading parties who otherwise would have had difficulty in producing real estate assets – the designated acceptable collateral for commercial loans and credit services of banks.
It is therefore an available means for increasing the total generated transactions in the economy. It empowers enterprises with limited cash resources to engage in growing business ventures without being saddled with cash-sourcing problems. It is therefore among the pillars of the thriving domestic trade and commerce. Statement of the Problem In the international scenario, however, receivables financing is not a welcomed arrangement. Despite the advantages that it has to offer, receivables financing has been met with legal constraints associated with the transferability of debts.
Receivables financing for import-export transactions is accomplished through international factoring – and this brings in a number of elements that do not at all figure in a similar factoring transaction for domestic trading. For this reason, the application of receivables financing for international transactions is yet to overcome hurdles and complications before all resistance against it will finally die down. Then and only then will its advantages be maximized by a greater number of business entities and then made available to a growing share of the international markets. Purpose of the Project
The purpose of the project is to critically examine and discuss the mechanism of domestic and international receivables financing to be able to propose ways for the engaged parties to mutually benefit from the transactions. The project will as well evaluate the efforts of the national government and international bodies to address the existing constraints. Research Question • What are the advantages offered by receivables financing? • What are the factors that give rise to the legal constraints associated with the transferability of debts? • What are the other existing arguments against receivables financing?
• How can international bodies address the existing constraints? • Can international bodies successfully design a set of policies regarding international factoring that will be acknowledged and applied uniformly by all countries worldwide? Definition of Terms Receivables Financing Receivables Financing is a mechanism for selling the accounts receivables of a firm at a discount for the purpose of converting it to cash sooner than the designated dates when such accounts receivables become due and demandable. (Eugene Brigham & Joel Houston; 1998, Fundamentals of Financial Management) Pledging of Accounts Receivables
Pleading of Accounts Receivables is the act of putting accounts receivables up as security for a loan. It is characterized by the fact that the lender not only has a claim against the receivables but also has recourse to the borrower – this means that if the firm that bought the goods does not pay, the selling firm must take the loss. Therefore the risk of default on the pledged accounts receivables remains with the borrower. The buyer of the goods is not ordinarily notified about the pledging of the receivables. (Eugene Brigham & Joel Houston; 1998, Fundamentals of Financial Management)