How does securitizing account receivable affect cash flow. I read that it affects both CFO and CFF. I will appreciate if you can explain on how exactly transacation happens for a company that have for example $20Million as account receivable and it is getting securitized.
I know that with securitizing, you treat it as a sale and cash inflow, therefore increasing CFO, compared to CFF. Not sure what it does to CFF, though. If I’m completely wrong, please disregard.
If you’re adjusting account though to make them less misleading, you whack that 20m into CFF and take it out of CFO wouldn’t you? Because it’s like getting a short term loan.
I see how CFO increases with securitization but I can’t wrap my head around the CFF portion. With “financing of payables” CFF is affected but with securitizing of A/R I’m not sure the same is true. I see 2 issues at play with securitizing A/R 1) this action is unsustainable – acceleration of cash collection cannot continue in the long term 2) if A/R was sold with recourse then as an analyst you need to bring the A/R back onto the balance sheet and increase liabilities Any clarification on financing vs. securitizing would be helpful.
if receivables are sold with recourse, increase CA and CL by the amount recd from sale of the same. The same proceeds shud be reclasified as CFF (from earlier CFO).
We pull the inflow out of CFO and reclassify as an inflow to CFF because we’re basically getting a loan with the receivables as collateral. i think.