An off-balance sheet (OBS) technique whereby an entity sells (or securitizes) its receivables (accounts receivable, A/R), to a third party (at a discount). In economic sense, this sale is tantamount to a loan raised by the selling entity from the buyer, with the receivables serving as collateral. In accounting treatment, this sale is recorded as follows:

Debit cash/ bank

Credit A/R

For receivables that are sold (de-recognized) and sill uncollected, the entity shall debit A/R by the amount of uncollected A/R, as it is still subject to recourse for an amount larger than, or equal to, the corresponding bad debt expense. The accounting effect of this transaction is the recognition of cash flow from financing activities (CFF) as cash flow from operations (CFO).

Sale of receivables (also known as factoring) is a type of debtor finance in which accounts receivable (i.e., invoices) are sold to a third party (called a factor) at a discount constituting the price. This is usually done by businesses seeking to secure cash for their immediate needs.