| In these days, most firms involved in international trade offer credit to their customers. Open Account(O/A) and Documents against Acceptance(D/A) become the major methods of trade settlement. As a result, the Accounts Receivable(AR) increase rapidly and represents a substantial component of both corporate liabilities and assets, especially in the case of small and medium- sized companies with restricted access to financial markets. High proportion of AR leads to underinvestment problem and the lack of cash. How to release the potential financing power of AR and to increase the cash flow-in of firms is a serious problem needed to solve.There are 3 financing choices backed by AR: Collateralized loan using AR as collateral, factoring AR, securitizing AR. Each of them will generate cash for the firm. In view of their respective advantages and disadvantages, how can firms choose the most appropriate one between the three methods mentioned above? Our research discusses four management aspects: (1) incentives to extend trade credit; (2) structure of sales; (3) marketing channel; and (4) agency problem. We draw a conclusion: Larger firms or ones with higher credit ratings are more likely to loan using AR as collateral, they can either finance through forming SPV for securitizing AR purpose. Factoring is more likely among firms with smaller size or lower credit ratings. Moreover, new companies facing huge capital expenditure programs and some firms, who sale through sales agents rather than their own sales force or whose features are low manufacturer/customer concentration and seasonal sales, incline to use factoring too. As for small and medium-sized firms who own high-quality AR, securitization is another appropriate financing channel. In the last part of this paper, the author discusses the present situation of performing International factoring and AR securitization in China, and try to give some practical and effective suggestion to Chinese export companies with financing demand. |
PDF Full Text Request