Oneal carries on a wholesale toy distribution business.He sells to his customers on credit, giving them 30 days to pay.Oneal is negotiating for an operating line of credit and his bank has asked him to assign his receivables to them as security for his obligations under the line of credit.Assuming that Oneal agrees to the assignment, which of the following is TRUE?

Question

Quizplus · Accepted Answer

If Oneal agrees to assign his receivables to the bank, he will be permitted to continue to collect his own receivables and carry on his business as usual, unless he defaults on his loan and the bank exercises its rights pursuant to the assignment agreement. The customers will still pay their accounts to Oneal, who will then forward the payments to the bank to repay the loan. If Oneal defaults, the bank will have the right to collect the receivables directly from the customers. Option A is incorrect because customers will not have to pay their accounts to the bank. Option B is incorrect because if Oneal's receivables are more than the amount of the loan, the surplus will not automatically be the bank's. Option D is incorrect because Oneal will still have to collect his receivables himself. Option E is incorrect because if Oneal defaults under the operating line of credit, his customers will still have to pay what they owe him.

Oneal Carries on a Wholesale Toy Distribution Business