Answer the following statements true (T) or false (F)

Question

1. Factoring accounts receivable is not a form of secured short-term borrowing. It entails the sale of accounts receivable at a discount to obtain the required short-term funds.
2. Pledges of accounts receivable are normally made on a nonnotification basis, meaning that a customer whose account has been pledged as collateral is not notified.
3. Pledges of accounts receivable are never made on a notification basis because the lender does not trust the borrower to collect the pledged account receivable and remit these payments as they are received.
4. Nonrecourse basis is the basis on which accounts receivable once sold to a factor, the factor accepts all the credit risks on the purchased accounts.
5. The percentage advanced by a lender constitutes the principal of a secured loan and varies according to the type and liquidity of the collateral.

Answer 1

1. TRUE
2. TRUE
3. FALSE
4. TRUE
5. TRUE