Assigned accounts receivable are a company's own accounts receivable that it has pledged as collateral to a lender in exchange for a loan, without actually selling the receivables or transferring the right to collect them. The borrowing company, called the assignor, continues to own and collect its receivables exactly as before; the lender, called the assignee, simply has a legal claim against those specific receivables if the loan is not repaid.
How assignment differs from factoring
Assigning receivables as collateral is a secured borrowing arrangement, not a sale. The receivables remain on the borrowing company's balance sheet throughout, and the loan proceeds are recorded as a liability. This contrasts with factoring accounts receivable, where a company actually sells its receivables outright to a third party, removing them from its own books and transferring both the risk of non-collection and the right to collect directly to the buyer.
Why a company assigns receivables
Smaller or fast-growing companies that need working capital but cannot qualify for an unsecured loan, or that want a lower interest rate than an unsecured facility would carry, often use their receivables as collateral precisely because receivables are relatively liquid and easy for a lender to value. The lender typically advances only a percentage of the face value of the assigned receivables, holding back a margin to protect against the possibility that some portion ultimately proves uncollectible.
Disclosure and accounting treatment
Because the receivables are pledged but not sold, the assigning company keeps recognizing revenue and recording collections normally; it discloses in the notes to its financial statements that a specific pool of receivables, or receivables in general, has been pledged as collateral for borrowing, since a reader of the balance sheet would otherwise have no way of knowing that those assets are not entirely free and available to satisfy other creditors.
Risk allocation between the parties
Whether the lender has recourse against the borrowing company if an assigned receivable turns out uncollectible, beyond simply seizing the pledged receivable itself, is typically spelled out in the loan agreement; most assignment arrangements are made with recourse, meaning the borrower still bears the ultimate credit risk on its customers, which is the key practical difference from non-recourse factoring arrangements where the buyer of the receivables absorbs that risk instead.
A simple worked example
A company with $300,000 of accounts receivable might assign them to a lender in exchange for an $210,000 advance, roughly 70% of face value, with the lender holding a security interest in the full $300,000 pool as protection. As customers pay their invoices, the company continues collecting the cash itself and uses the proceeds to pay down the loan, with the lender's claim against the receivables shrinking in step with the outstanding loan balance.
Assigning versus factoring receivables
Assigning receivables is often confused with factoring accounts receivable, but the two are structurally different. In an assignment, the company keeps legal ownership of its receivables, keeps collecting payment itself, and simply pledges the receivables as collateral for a loan — the arrangement is a financing transaction, not a sale. In factoring, the company actually sells the receivables outright to the factor, which then takes over collection directly from the customers and bears more of the credit risk itself. Because an assignment is a loan rather than a sale, the receivables stay on the assigning company's own balance sheet the whole time, while a true sale under factoring removes them from the seller's books entirely.