What is the definition of receivable collateral?

Receivable collateral refers specifically to an asset that is pledged to secure a loan or credit facility, primarily when the asset in question is accounts receivable. This means that if the borrower defaults on the loan, the lender has the right to claim the receivables to help recover the amount owed. In this context, using accounts receivable as collateral is a common practice for businesses seeking financing, especially since those receivables represent money that is expected to be collected from customers.

Understanding this concept emphasizes the importance of accounts receivable in a company's financial management and how these assets can be leveraged to obtain additional funding.