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American Airlines converted a $9.5 million receivable into an 8% note payable over seven years, reduced its terminal lease by $150,000 per month and released Midway from a maintenance contract.
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It then packages those receivables into bonds and sells them to investors, who receive interest derived from the insurance payments.
It then packaged those receivables into collateral for bonds and sold the bonds to investors, who received interest derived from the insurance payments.
The company is also considered aggressive for its accounting of the money it is owed by cardholders; Sears is not governed by the same rules as banks, and moves those receivables into its corporate accounts.
Suppliers can use the program either to simply guarantee that they will be paid for their deliveries or, for an additional charge, to convert their receivables into cash so that they do not have to wait for payment.
Turning receivables into cash raises a company's cash from operations.
It then experienced significant problems generating free cash flow, primarily because it wasn't able to convert those receivables into cash.
They package the receivables into AAA-rated bonds yielding perhaps 85 basis points more than the five-year Treasury, or about 6.7%.
Eventually the company needs to turn receivables into cash, and that's not going to happen unless the wholesale customers are happy with the goods and are able to sell them to end users.
Term of debt schedule, as well as breakdown of accounts payable and accounts receivable (broken into monthly categories going back at least three months).
Few scents in this world are as evocative as freshly-cut hay -- it sends me instantly to my youth, perhaps to that innocent time before financial statements, before business plans and before thoughts of payables and receivables crept into my mind.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com