Explanation:
b) is correct. By setting up a financing arm that helps customers secure credit from other sources (such as a third-party bank or financial institution), Tan Company facilitates the sale but shifts the credit risk entirely to the third-party lender. The company receives immediate payment for the sale without carrying the receivables on its balance sheet, thus minimizing its credit risk.
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24.2.1. Tan Company, an international motorcycle distributor, is experiencing a decline in sales due to a global economic slowdown. The company seeks strategies to enhance sales volumes while minimizing additional credit risk exposure. Which of the following methods would allow Tan Company to achieve an increase in sales, taking on the least amount of credit risk?
A
Purchase insurance on their accounts receivable.
B
Set up a financing arm that helps customers secure credit from other sources.
C
Require collateral from customers.
D
Sell receivables at the end of every month.
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