Question

Consider the differing means of debt financing available (or emerging) that may be involved in business performance and decision-making

• What are the legal rights, responsibilities, and liabilities of parties involved with negotiable instruments, secured transactions, and debtor-creditor relationships?
• What steps should be taken to account for and safeguard a company’s rights and track its responsibilities in such relationships?

Answer 1

1) The sources of debt financing available that may be involved in business performance and decision making are:

a) Loans

b) Trade credit

c) Installment Purchase

d) Asset based lenders

e)Bonds

f) Factoring

2) The legal rights,responsibilities and liabilities of parties involved with negotiable instruments,secured transactions and debtor creditor relationship are as under:

a) Negotiable instruments - Here two parties are involved. A person writes unconditioned promise to pay a sum of money to the other. The person on whom it is transferred needs to get it endorsed and it is a right to the person and the one who makes it is liable to pay the money mentioned in the instrument in return of any services or transaction between them.

b) Secured transactions- Here there are two parties,lenders and borrowers.Lenders more often requires more than just a promise to get their money back from the borrower.Here borrower gives any security against the money borrowed and in return he has a complete right to get the money and on complete repayment of the money the lender is liable to transfer the security to the borrower. If it happens that the borrower is unable to pay the amount of money borrowed than in that event the lender has a right to sell the security to recover the money.

c) Debtor Creditor relationship- Debtor is the person to whom we sell. Creditor is the person from whom we purchase.Both the transactions done are on credit.So in case of debtors, they are liable to give us the money of sales done on credit within the completion of a span of time, that is a credit period. In case of creditors we are liable to pay them money for purchases done on the within the credit period.

3) The steps to safeguard the company's rights and responsibilities in such relationships are:

a. Know your customer rights and responsibilities.

b. Keep the deadlines when to worry about too much debt.

c. Manage the debts

d.Consolidate debts

e.Debt settlement means and practices

f.Make a plan to avoid banktrupcy

g.Make the debit or credit plan based on your circumstances of the business and financial viability.