Question

With ________, the seller assumes all risk until the actual dollars are received.

a) open accounts
b) irrevocable letters of credit
c) bills of exchange
d) factoring agreements
e) forfaiting contracts

Answer 1

With factoring agreements, the seller assumes all risk until payment is received, which transfers credit risk to a third party. Money-back guarantees are used to reassure buyers about product quality, especially for online or catalog sales.

Step-by-step explanation:

With factoring agreements, the seller assumes all risk until the actual dollars are received. In this kind of financial arrangement, a business sells its accounts receivable (invoices) to a third party (a factor) at a discount. The factor then assumes the responsibility of collecting the debt. This provides the seller with immediate capital and transfers the credit risk to the factor. Other options like open accounts, irrevocable letters of credit, bills of exchange, and forfaiting contracts involve different levels and types of risk distribution between the seller and buyer.

Furthermore, sellers might use strategies to reassure potential buyers facing imperfect information. These strategies can include offering a money-back guarantee, which serves as collateral as insurance against unforeseen, detrimental events and as a promise of product quality. Especially for businesses selling goods through mail-order catalogs or online, providing such reassurances can encourage customers to make a purchase even if they cannot physically inspect the products.