type of credit extended by one business to another business, allowing the latter to buy goods from the former without making immediate full payment by check or with cash. It is credit obtained through open-account purchases represented by an accounts payable by the buyer and an accounts receivable by the seller. Trade credit is an important external source of working capital for a business, although it can be very expensive. For example, a credit of 2/10 net 30 (2% cash discount if paid within 10 days, otherwise due in 30 days) translates into a 37% annual interest rate if the cash discount is foregone.
open-account arrangements with suppliers of goods and services, and a firm's record of payment with the suppliers. Trade liabilities constitute a company's accounts payable. Trade credit is an important external source of working capital for a company, although such credit can be highly expensive. Terms of 2% 10 days, net 30 days (2% discount if paid in 10 days, the net [full] amount due in 30 days) translate into a 36% annual interest rate.
open account arrangements with suppliers of goods and services, and a firm's record of payment with the suppliers. Trade liabilities comprise a company's accounts payable. Dun & Bradstreet is the largest compiler of trade credit information, rating commercial firms and supplying published reports. Trade credit data is also processed by mercantile agency specializing in different industries.
Trade credit is an important external source of working capital for a company, although such credit can be highly expensive. Terms of 2% 10 days, net 30 days (2% discount if paid in 10 days, the net [full] amount due in 30 days) translate into a 36% annual interest rate if not taken advantage of. On the other hand, the same terms translate into a borrowing rate of slightly over 15% if payment is made in 60 days instead of 30.
