Trade credit, factoring, confirming and line of credit

If we contract recourse factoring, the advance of funds implies that:

• We wait until the invoices are due to receive the money

• We eliminate the insolvency risk of our customers

• We obtain liquidity before the invoices are due

• We receive cash for free

One of the characteristics of the line of credit is:

• We know exactly the amount we need

• It is automatically renewed at maturity

• It has immediate liquidity

• None of the options is correct

Confirming has advantages for the supplier because:

• It reduces administrative work in relation to the payment process

• The supplier can obtain financing without consuming its own credit capacity

• It concentrates the financial risk in the confirming company

• It increases the bargaining power against the suppliers

It is an advantage for the company to contract the confirming because:

• It can obtain financing at zero cost

• It concentrates the financial risk in the confirming company

• It can eliminate the risk of non-payment

• It increases the bargaining power against the suppliers

If a firm can obtain a bank loan whose cost is 10% and, alternatively, it receives the following trade credit terms from a supplier: 4/0 net 90. What should the firm do?

• Pay the supplier in cash to enjoy his/ her early payment discount

• Pay the supplier the day 90 to enjoy his/her financing

• Pay the supplier the day 90 to enjoy his/her early payment discount

• Pay the supplier the day 0 to enjoy his/her financing

Which of the following funding sources can be used when there is either a deficit or an excess of cash?

• Factoring

• Confirming

• Trade credit

• Bank loan

What is an advantage of trade credit over a bank loan?

• It has no cost

• It is normally less time consuming requesting it

• It eliminates credit risk

• All the options are correct

What is an advantage of factoring over a bank loan?

• It is normally cheaper

• It does not require a formal contract

• It does not create a new debt in the balance sheet

• None of the options is correct