Mike and Andy is a clothing store for teenagers. It is chronically short of cash, so...

Mike and Andy is a clothing store for teenagers. It is chronically short of cash, so arranges a 120-day commercial bill (BAB). According to the theory of management of assets, what use should it put this money to?

After thinking about how it could be done, explain the processes an entity might use to collect its debts.

Expert Solution

Commercial bills are unsecured, short-term debt issued by a corporation, often times for the financing of short-term liabilities and inventory.

If the Mike and Andy needs funds, it may draw a bill and send it to the buyer for acceptance.The buyer accepts the bill and promises to make the payment on the due date. It may also approach its bank to accept the bill. The bank charges a commission for the acceptance of the bill and promises to make the payment if the buyer defaults. Once this process is accomplished, it can sell it in the market. This way a commercial bill becomes a marketable investment.

Usually, the seller will go to the bank for discounting the bill. The bank will pay him after deducting the interest for the remaining period of the bill and service charges from the face value of the bill. The interest rate is called the discount rate on the bills. The commercial bill market is an important channel for providing short-term finance to business.

ekkarill92 answered 1 year ago

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