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8 Cards in this Set
- Front
- Back
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Trade credit |
Means that an enterprise can buy the items it needs and then have an agreed number of days in which to pay the supplier.
Buy-now, pay later basis. |
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The trade credit between enterprises and their suppliers(trade payable) |
Trade payable- the amount of money owed by the enterprise to suppliers, such as for raw material received but not paid for. The revenue that the enterprise make, will pay the bill for the raw materials unpaid. |
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Concept |
If the enterprise pays within the agreed number of days then it only pays what was agreed. If they go over the agreed number of days - there will be penalties (percentage increase on the bill) There might be even rewards for early repayments, such as percentage discount on the agreed price. |
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Supplier |
Is a person or organisation that provides the goods/materials or services that an enterprise needs in order to operate. |
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Revenue |
The money that comes into an enterprise from selling goods and services. Revenue = Selling prices × Quantity sold. |
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Trade credit between enterprises and their customers. |
Trade receivables - the amount of money owed to the enterprise by customers who have had goods or services but not yet paid for them. |
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Concept |
Enterprises offer customers trade credit so that they can benefit from the repeat custom that it often brings. A start-up enterprise - is unlikely to get trade credit with their suppliers. As they are not financially sound and able to pay their bills on time.
Once, the enterprise has proven itself that they are financially sound and are able to pay its bills on time, suppliers are more likely to offer trade credit. Key benefit of trade credit- It encourages repeat custom. |
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Disadvantages of offering trade credit to a customer |
- the enterprise does not get the money for their goods or services straight away, which can cause cash flow problems. - chasing late payments - can be costly because of extra time that it takes. |
