Dangers of over-reliance on trade credit, Financial Accounting

Assignment Help:

Dangers of over-reliance on trade credit

In effect for the reason that trade credit represents temporary borrowing from suppliers until invoices are paid it becomes an important method of financing the firm's investment in current assets. Firms perhaps tempted to view trade payables as a cheap source of finance especially as in the UK at least it is currently interest-free. Having a receivables' collection period smaller than the trade collection period may be taken as a sign of efficient working capital management.

Nevertheless trade credit is not free. First by impediment payment of accounts due the company may be passing up valuable discounts thus effectively increasing the cost of goods sold. Second extreme delay in the settlement of invoices can undermine the existence of the business in a number of ways. Existing suppliers perhaps unwilling to extend more credit until existing accounts are settled they may begin to attach a lower priority to future orders placed they may raise prices in the future or simply not supply at all. Additionally if the firm acquires a reputation among the business community as a bad payer its relationships with other suppliers may be soured.


Related Discussions:- Dangers of over-reliance on trade credit

Recording, explain the terms recording,classifying,summarizing and communic...

explain the terms recording,classifying,summarizing and communicating

Debenture, X co has a bond outstanding that carries a coupon rate of 90% an...

X co has a bond outstanding that carries a coupon rate of 90% and current maturity is 15yrs and the call price is Rs 1060 per bond(25000 bonds Rs 1000 face amount)9% bond had origi

Calculate return on invested capital, Five years ago Ramon Millan quit his ...

Five years ago Ramon Millan quit his job as an associate at a large law firm and opened a burger joint in Malibu. His innovative use of aged blue cheeses and specialty sauces resul

Determining the future value, Let us assume that you deposit Rs.1000 in a b...

Let us assume that you deposit Rs.1000 in a bank that pays 10 percent interest compounded yearly for a period of 3 years. The deposit will grow as given details: Fir

INTANGIBLE ASSETS, Baruch Lev, who is a professor of accounting at New York...

Baruch Lev, who is a professor of accounting at New York University and a globally known academic for his research on financial reporting for intangibles, is that the economy has c

Partnership amalgamation, how to prepare the accounts when goodwill is not ...

how to prepare the accounts when goodwill is not to be maintained in the books

Short-term solvency, Example of Short-term Solvency             ...

Example of Short-term Solvency                           Current Ratio = Current Assets / Current Liabilities                                                = 5.38

What are some examples of co branded foods?, What are some examples of co b...

What are some examples of co branded foods? is cool ranch doritos one?

Gathering Financial Information and Analysis, Many hospitals are classified...

Many hospitals are classified as not-for-profit (NFP). The presentation of for-profit (FP) financial statements differs in several respects from NFP accounting. You will probably w

Financial decision making, how do i write an assignment about financial dec...

how do i write an assignment about financial decision making

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd