Essay Commercial Credit

1764 Words Mar 4th, 2014 8 Pages

Commercial Credit

Legal Environment of Management

Commercial Credit
Exchanging services and/or goods in exchange for the promise of future payment has been in existence for centuries. Loans were made as early as 1300 B. C. as securities for mortgages and advance deposits. The first use of open credit in America can be traced back to 1620 with the establishment of the first permanent colony in New England.
The Pilgrims spent three years negotiating with England to raise funds for their journey. Soon, a wealthy London merchant struck a deal with the Pilgrims to fund their trip by lending them 1800 British pounds, which today would be equivalent of 2400 US dollars. The terms of this agreement were
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Years following the American Revolution, the Treaty of Paris was signed bring the war to an end. The ending resumed trading in which American importers and wholesalers extended generous terms to their customers. Terms of sales were typically twelve months, but they also offered six to nine month terms. Generally a customer’s account would go up to twenty- four months unpaid, which caused credit references to assume a high level of importance. This lends true to today’s economy when trade credit is used.
Business or trade credit has been on the United States business scene for hundreds of years. Credit is used for the purchase of goods or services and continues to be a very important source of funds for firms. Credit allows more flexibility and financing for businesses than commercial borrowing or corporate bond financing. If business credit was not available the economic system as we know it would be none existent.
Businesses offer credit terms to customer to accommodate the sale of goods and services as a primary source to create revenue. Businesses offer credit for various reasons such as increasing sales, competition, promotional offers, convenience, and pricing just to name a few. When credit is extended to buyers it involves a trade between inventory holding and the holding of accounts receivable.
Businesses use attractive and special offer credit terms to match competitors and offering promotional products. Trade credit

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