Don’t Take Receivables at Face Value
Feb 01,2018
Don’t take receivables at face valueBorrowers often use accounts receivable as collateral for their loans. But how can you ensure that your borrower’s receivables are truly collectible amounts? Lurking beneath the surface may be significant problems that, if not addressed, may lead to default. Do your research and get to know the warning signs that may indicate accounts receivable weaknesses — or even fraud. Evaluating qualityAccounts receivable represent the amount of money that customers owe a borrower for purchases. If a borrower pledges receivables as collateral to qualify for a loan or line of credit, lenders typically claim them to cover losses if the borrower defaults on repaying its debts.Poorly maintained or fraudulent balances hobble the lender’s ability to recover losses, however. That’s why the quality of receivables is important.When evaluating the quality of receivables for a new or existing borrower, begin by computing the days sales outstanding (DSO) ratio. This...

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