Chapter #7 - Trade Credit Flashcards
Supplier
A person or organization that provides the goods/materials or services that an enterprise needs in order to operate.
Trade payable
The amount of money owed by the enterprise to suppliers, such as for raw materials received but not paid.
Trade credit
An enterprise can buy items that it needs and has a set amount of time before it needs to pay the supplier.
What occures if an enterprise does not pay trade payable in the agreed amount of time?
If their payment is late, there will be penalties attached (interest)
What occurs if an enterprise pays trade payable within the agreed number of days?
It pays only what was agreed
Why would an enterprise want to use trade credit?
Because they might not have the money to buy essential items from a supplier. So, if they use trade credit, they can have the supplies to be able to continue operating their business and pay later, once they have the money.
Customer
A person or organization that buys goods/materials or services from an enterprise.
Trade recievable
The amount of money owed to the enterprise by customers who have had goods or services but not yet paid for them.
Why would suppliers want to offer trade credit?
Because it encourages a repeating customer so that they can have a more stable income.
Will a start-up enterprise often recieve trade credit? Why is this?
It is unlikely due to not yet being established and able to pay your bills on time. However, with careful planning, you may be able to negotiate this with suppliers
Goods
The finished product sold by an enterprise to its customers.
Service
Something that an enterprise might do for their customer (such as cleaning their window).
Cash flow
The movement of money into and out of an enterprise.
Materials
The raw components (such as ingredients for a cake) that are needed to make the finished goods.
the downfalls of offering trade credit to customers is that:
- The enterprise does not get any money for their goods or services right away
