When a ﬁrm sells its trade receivables to a ﬁnancial institution, it is called:

Question

Quizplus · Accepted Answer

When a firm sells its trade receivables to a financial institution, it is called securitization. Securitization involves pooling similar assets and converting them into securities that can be sold to investors. This allows the firm to receive cash immediately rather than waiting for customers to pay their invoices, which can improve cash flow and reduce credit risk. Captive financing refers to a subsidiary of a firm that provides financing for its parent company's products, while collateralization involves pledging assets as collateral for a loan. Legalization is not related to this process.

When a ﬁRm Sells Its Trade Receivables to a ﬁNancial