discounting of accounts receivable

Definition 1

Obtaining a working capital (short-term) loan against the discounted value (usually 80 to 90 percent of the invoiced amount) of accounts receivable (A/R) that meet the lender's creditworthiness criteria. The lender does not buy the A/R but only uses them as a collateral. In case of a default, however, the lender has the right to collect direct from the borrower's debtors.

Definition 2

Selling A/R at a discounted value (usually 70 to 85 percent of the invoiced amount) to a factor who then becomes responsible for collecting them. See also factoring.