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I’m not too sure about factored receivables. So i just want to check if my understanding is correct on the following transaction below.
On 31 march 2011, highwood factored (sold) trade receivables with a book value of $10m to easyfinance. Highwood received an immediate payment of $8.7m and will pay easyfinance 2% per month on any uncollected balances. Any of factored receivables outstanding after 6 months will be refunded to easy finance. Highwood has derecognised the receivables.
From this, am i right to say that
– highwood is the one selling its receivables.
– easy finance is the one collecting the receivables
– therefore, if customers dont pay up easy finance can go back to highwood and highwood will be responsible for the outstanding debts. Also known as recourse.I have a qn. In the transaction, why the outstanding receivables after 6months will be refunded to easy finance ? Shouldnt it be refunded back to highwood, the party who sold its receivables?
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