What is interest free trade credit? (1 Viewer)

[Aysce]

I know what trade credit is but "Interest free trade credit"?


Idgi

 

[fortune_cookie]

gdbggdgndgndzgndg

 

[fortune_cookie]

It is exactly what it says it is, interest free credit.

When a company buys something from a supplier they typically will not pay for it immediately. They will be given an invoice and it will have terms that look like " 2/7 n/30". This means that you can recieve a 2% discount if the bill is paid within 7 days, or the payment of the bill in full is due in 30 days.

It provides a very short term financing arrangement for the purchaser because instead of having to pay cash upfront they can use that cash elsewhere for 30 days at no cost. Of course, there is an opportunity cost involved if the purchaser wants to wait the whole 30 days before paying bill, that is the 2% discount.


Note: my first post was garbage because something is going on with my internet. My internet is really slow and it will only the the first post in the thread :|. I cannot see any other posts in the threads until my download limit resets in 2 days :|

 

[Examine]

Basically when a business is borrowing money (whatever they owe), usually they have to pay interest back (that's how the other business issuing the loan makes profit). The business issuing the loan may have a deal where if the business pays back the accounts payable in a year or so, they do not have to pay the interest that they would if they didn't have that deal, thus if the business pays quickly they save on expenses.

Basically a way that the business who is financing can improve their cash flow and how the business who needs to pay that business can save on moolah.

 

[fortune_cookie]

No, the interest free period is never a whole year. It is usually 30 days.

 

[Examine]

No, the interest free period is never a whole year. It is usually 30 days.

It depends on which industry it is in.

 

[fortune_cookie]

No, you are thinking about it the wrong way.

Trade credit would be between Harvey Norman and THEIR suppliers, not between Harvey Norman and their customers

 

[fortune_cookie]

When Harvey Norman gives their customers interest free periods it is not called trade credit. It is a very similiar idea , but I am quite sure it is called something different.

 

[Examine]

No, you are thinking about it the wrong way.

Trade credit would be between Harvey Norman and THEIR suppliers, not between Harvey Norman and their customers

What you described above was discounts for early payments, though I see what you mean about it being in the short term, would make sense. (Aysce disregard the Harvey Norman example, though the idea is still right)