The two methods companies can use to convert receivables to cash before they are due includes selling them and pledging them.True false question.TrueFalse
Question
The two methods companies can use to convert receivables to cash before they are due includes selling them and pledging them.
True false question.
True/False
Solution
This statement is True.
Companies can indeed convert receivables to cash before they are due using two primary methods:
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Selling Receivables: This involves selling the accounts receivable to a third party (often called a factor) to receive cash immediately, albeit at a discount.
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Pledging Receivables: Companies can use receivables as collateral to secure a loan. They do not sell the receivables but pledge them to obtain cash.
Both methods provide companies with liquidity by converting receivables into cash before the actual due date.
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