What is trade credit? - Business and Finance Solutions

I know that most of you have clear what a trade credit , but I think it is appropriate to explain in a simple way.

The trade credit is the delay in payment that companies give their customers a transaction business purchase / sale of goods or services. That is, if you (as a customer ) purchase a particular good to a company ( supplier ) and remember that efectuar?s payment to 60 days, the company / provider is giving you a business loan.

Obviously, this type of trade credit has not entail any interest explicit, but implicit, as the company / supplier will not have the money for another two months and if you could invest COBRASE spot, so if you would a benefit. And the opposite happens to us (customer buyers) and not have to pay because we can use that money to get some performance or profit.

From the point of view of the company / supplier , the best would always collect cash, but often this can not be, because there will always be some other company that offers a deferred payment arrangements, obtaining a competitive advantage over who not offer. Because from the point of view of the buyer, better pay within two months they have to pay now, no?

Now, as a company / supplier must not grant trade credit to any person who requests it , if not we?ll have to have a department of risk to analyze the operation and reliability of the customer set, since not all customers are equal solvents.

Therefore, you must always set the credit quality of the customer, ie until limit money (and time) you can defer payment. And this one makes a Credit Risk Management effectively analyzing customer, the transaction, the amounts, timing, etc.. with the only (and most important) goal of avoiding defaults and delinquent customers.

Gradually we will see how to make good management of commercial credit to avoid risks resulting therefrom.

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