Chapter 8, Problem 9DQ

Summary Introduction

To explain: The distinction between pledging accounts receivable and factoring accounts receivable.

Introduction:

Pledging accounts receivable:

It is a practice that enables businesses to fund its operational activities by using its accounts receivables as security for loans.

Factoring accounts receivable:

It is a type of financial transaction in which accounts receivable of a business are sold at a discount to a third party. It is usually done in order to meet an immediate need of cash by the firm.