It shows how many days, on average, accounts receivable are outstanding. Accordingly, there are ways to obtain cash before collection from customers occurs. Establish finance companies. Pledge their accounts receivable as collateral on a loan. Without recourse, the factor bears any losses from uncollectible accounts.
Credit cards are an example of factoring without recourse.
With recourse means that the seller bears the risk. This risk is disclosed in the financial statements as a contingent Iiability, a potential liability that can develop into a real liability depending on a future event. Discounting , or selling notes receivable, is yet another way companies maintain liquidity. Cash - includes coin, currency, checks from customers, checking account deposits, and compensating balances. Compensating balance - is a minimum account balance required by a loan agreement.