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Securitization of receivables: a viable strategy for some businesses

For many large and profitable businesses in the New York metro area, accounts receivables spell the lifeblood of their enterprise. A steady influx of money owed by customers and clients pays the bills and employees' salaries and, importantly, also provides the resources necessary for further expansion and the exploitation of attractive commercial opportunities.

There can be a catch related to receivables, though, and it can sometimes be material. As noted in one topical media focus, they "can take a long time to turn into cash, and a portion may never get paid."

What might select businesses do when, for various reasons, they want to realize a relatively quick cash inflow from receivables that will not materialize if the usual processing period is applicable?

In certain instances, and provided that they are able to take advantage of the opportunity, they can turn to a proven commercial law firm for assistance in securitizing assets. Simply put, that means converting receivables to securities and then selling them to investors.

The process can be summarized well enough, although, as stressed in the above-cited overview, "it requires fairly complex planning to actually pull off" (thus the nod to capable assistance rendered by a law firm that commands extensive experience helping business clients with receivable securitization).

With securitization, a company sells receivables that are securitized to investors at some discount, getting needed money upfront. In doing so, the risk of payment passes to the investors. A distinctly noted advantage of securitization for an involved company is that, while some value of receivables is relinquished in the process, securitizing receivables can be cheaper for an enterprise "than taking out a loan backed by the cash flow from the same receivables."

Again, and while the securitization of receivables can be a sound idea for some businesses, the process is complex and best managed by proven commercial attorneys with a demonstrated record of success representing clients across a wide universe of structured finance transactions.

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