What are some consideration of Residual Collections?

• A. if contract doesn't define value, may need to determine FMV
• B. Cost of repossession may diminish residual FMV
• C. The asset must be sold within 30 days
• D. FMV does not matter

Answer: (D)

Residual collections revolve around how much you can recover from an asset at the end of its term, so the value of that asset at liquidation is central. The fair market value (FMV) is the anchor you use to estimate potential recovery when the contract doesn’t specify a residual value. If value isn’t defined in the agreement, you’ll typically determine FMV to establish a realistic expectation for what can be collected.

Another important factor is that the costs tied to repossessing and selling the asset can reduce the net amount recovered. Those costs effectively diminish the residual value you can actually realize, so they must be considered in any projection of recovery.

As for timing, while selling promptly is common to minimize further depreciation, there isn’t a universal rule that a collateral asset must be sold within a fixed window like 30 days; the applicable timeline depends on policy, logistics, and legal requirements.

In short, FMV matters a great deal for estimating residual collections, and costs of repossession can lower that recoverable amount.