Question 3

Tree-House Master, the market leader in USA, builds vacation houses, with timber as a key resource for these homes. Western Canadian Timber (Vancouver, Canada) is a long-term supplier of timber to Tree-House Master. The term of payment agreed between the two parties is open account.

a) Explain why Western Canadian Timber is willing to use open account in its dealing with Tree-House Master. Provide two valid reasons. (Justify using evidence from the passage only.)

(2 marks)

After the founder of Tree-House Master has retired, his son took over the helm of the business. The son has no passion for the business and takes no pride in building quality houses. Tree-House is currently facing a downturn and the firm is experiencing cash flow problems.

b) Western Canadian Timber is aware of these developments and is looking to switch from using open account to collection. Explain (with proper justifications) which variation of collection is best for Western Canadian Timber, with the key objective of maintaining maximum control.

In your explanation, also discuss why the other alternative(s) would not allow for maximum control.