Long Term Financing Paper

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Obligations due in 15 or more years are thought of as long-term debt.

The major forms of intermediate-term financing include (1) term loans, (2) conditional sales contracts, and (3) lease financing.

If the cash discount is not taken, payment is due 30 days after the date of invoice.

The cost of not taking cash discounts is the price of the credit.

When a receivable is pledged, the borrower retains the risk that the person or firm that owes the receivable will not pay; this risk is typically passed on to the lender when factoring is involved.

When loans are secured by inventory, the lender takes title to them.

Credit terms are usually expressed with a discount for prompt payment.

Thus, the seller may state that if payment is made within 10 days of the invoice date, a 2 percent cash discount will be allowed.

It may be secured by a chattel mortgage on equipment, but larger, stronger companies are able to borrow on an unsecured basis.

Commercial banks and life insurance companies are the principal suppliers of term loans.


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