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Glossary

Asset-backed security

Tradable bond that is backed by accounts receivable

A company can generate liquid funds by selling a portion of its accounts receivable to a subsidiary, which then finances its own operations through the issue of asset-backed loans. Such subsidiaries are established expressly for the purpose of implementing the asset-backed securities (ABS) funding model. ABS can also be issued on receivables that are paid in installments, e. g. receivables from leasing agreements, long-term car loans, collateralized consumer loans, and similar receivables. ABSs are paid back as soon as the borrowers settle their debts.Financing with ABSs enables companies to utilize a wider range of accounting procedures, and helps reduce their financing costs.

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