Management and Organizational Studies 2275A/B Chapter 26: Chapter 26.docx

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2275A/B
• Professor: Loren King

Document Summary

Secured credit: a debt where the creditor has an interest in the debtor"s property to secure payment. Unsecured credit: a debt where the creditor has only a contractual right to be repaid. For unsecured transactions, if a debtor fails to pay on time, the creditor may have to sue the debtor, obtain judgement, and then enforce the judgement. If the debtor has limited financial resources, the creditor may end up not being paid. For this reason, it is very important for the creditor to exercise good judgment when deciding whether to extend credit. Letter of credit: a written promise by a buyer"s bank to a seller"s bank to pay the seller when specified conditions are met. Banks will look at two major criteria when deciding whether to finance a large amount of money. Focus on the customer"s financial health in particular, the likelihood that they will be paid back.