Rick's Wholesale Office Supplies prefers to handle its accounts receivable itself, but it also needs to use them to facilitate short-term borrowing.What can Rick's do?

Question

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By pledging its accounts receivable as collateral, Rick's Wholesale Office Supplies can use them to secure short-term borrowing while retaining control over its receivables. This allows the company to maintain its preferred method of handling its accounts receivable while still accessing needed funds. Using loans secured by inventory may not be beneficial if the company does not have significant inventory holdings, and purging its accounts receivable or forcing customers to pay now would both negatively impact cash flow. Selling commercial paper may be an option, but it may not be the most practical solution for a small to mid-sized business like Rick's.

Rick's Wholesale Office Supplies Prefers to Handle Its Accounts Receivable