Explain one reason why trade credit is a source of finance.
Question
Explain one reason why trade credit is a source of finance.
Solution
Trade credit is a source of finance because it allows businesses to purchase goods or services from suppliers on credit, rather than paying cash upfront. This means that the business can use the goods or services to generate income before they have to pay for them. This can improve the business's cash flow and provide them with the working capital they need to operate. For example, a retailer might receive stock from a supplier but only pay for it 30 days later. In the meantime, they can sell the stock and use the income to pay for the stock and other expenses. This is essentially a short-term loan from the supplier to the business.
Similar Questions
What is the primary purpose of Export Credit?Finance imports into the countryProvide working capital for domestic industriesOffer pre-shipment and post-shipment finance to exportersFund infrastructure projects
Factors affecting the sources of finance
1. What is finance and explain three reasons why a business might need finance?
Multiple Select QuestionSelect all that applyWhich two statements correctly represent trade credit?Multiple select question.Trade credit is the most widely used source of short-term financing.Trade credit is a long-term loan option popular with smaller companiesTrade credit is long-term borrowing from owners' equity.Trade credit frequently involves discounts to organizations that pay their bills early.
Credit is a helpful tool because it:A.prevents lenders from charging higher interest rates in the future.B.rewards people for saving a percentage of their earnings.C.ensures that people do not overspend or exceed their ability to pay.D.allows people to borrow money that can be paid back later.SUBMITarrow_backPREVIOUS
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