Asked by Landrie Pierce on Jun 13, 2024
Verified
An assignment of book debts is a common corporate financing method. Describe such an assignment, the two ways debts may be collected and why each may be preferred by the assignor. Further, describe the notion of crystallization as it would apply in this context.
Assignment Of Book Debts
The transfer of the right to collect debts owed to a business, typically to secure a loan or as part of a financial arrangement.
Crystallization
The process in which a solid forms, where atoms or molecules are highly structured in a pattern extending in all three spatial dimensions.
Corporate Financing
The process of providing funds for business activities, making investments, and managing financial risks.
- Discuss the finance method of assignment of book debts and the concept of crystallization.
Verified Answer
The two options for collection are either collection by assignor or collection by assignee. The former may be preferred by the assignor as informing clients to make their payments to ostensibly a third party may have overtones of the assignor being in financial trouble. The latter may however be preferable where this appearance is irrelevant, and having the assignee collect the accounts means that the assignor need not worry about bad debts, nor incur the expense of maintaining a large Accounts Receivable department. The notion of crystallization would only occur in the instance of the assignor collecting the accounts. Here, if the assignor defaulted on its payments to the assignee, the assignee would step in, notify those with accounts payable of the assignment, and begin collecting the accounts itself. In the first situation there is no crystallization as the assignee is collecting the accounts from the beginning.
Learning Objectives
- Discuss the finance method of assignment of book debts and the concept of crystallization.
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