Asked by Kitty Dollas on Apr 29, 2024
Verified
Pledging accounts receivable:
A) is similar to factoring in that the receivables no longer belong to the borrowing firm.
B) may involve recourse which means that the borrower is responsible for losses from uncollectible accounts.
C) always requires the lender to review each account individually and determine which ones are creditworthy before agreeing to a loan.
D) is a relatively inexpensive form of financing.
E) All of the above are correct regarding pledging accounts receivable.
Pledging Accounts Receivable
Using accounts receivable as collateral to secure a loan.
Factoring
A financial transaction where a business sells its accounts receivable to a third party at a discount in exchange for immediate cash.
Recourse
In secured lending, if the asset collateralizing a loan proves not to have the value anticipated, recourse implies the borrower is still responsible for the debt. The lender is said to have recourse to the borrower.
- Understand the significance and procedures involved in managing credit, as well as the function of factoring.
Verified Answer
MD
Mosetta DennisApr 29, 2024
Final Answer :
B
Explanation :
Pledging accounts receivable may involve recourse, which means that the borrower is responsible for losses from uncollectible accounts. This distinguishes it from factoring, where the factor assumes the risk of nonpayment. The other statements are incorrect.
Learning Objectives
- Understand the significance and procedures involved in managing credit, as well as the function of factoring.