Trade Credit Arises When a Firm Sells its products or services on credit and does not receive the cash immediately. It is an essential marketing tool, acting as a bridge for the movement of goods through production and distribution stages to customers. A firm grants trade to protect its sales from the competitors and to attack the potential customers to buy its products at favorable terms. Trade credit creates accounts receivable or trade debtors. The customers from whom receivable or trade debtors. The customers from whom receivable or book debits have to be collected in future are called trade debtors or simply as debtors, who constitute a substantial portion of current assets of several firms. A credit sale has three characteristics, it involves element of Risk Economic value Futurity.
A firm's investment in accounts receivables depends on
(a) Volume of credit sales, and
(b) The collection period
In order to have the receivables in effective manner the firm should have an effective credit policy.
The term credit policy refers to combination of three decision variables, credit standards, credit terms and collection efforts. In practice the Indian companies grant credit for several other reasons such as the company position, buyer's status and requirement dealer relationship, transit delays, industrial practices, transit delays etc.
Download Full Project Report
A firm's investment in accounts receivables depends on
(a) Volume of credit sales, and
(b) The collection period
In order to have the receivables in effective manner the firm should have an effective credit policy.
The term credit policy refers to combination of three decision variables, credit standards, credit terms and collection efforts. In practice the Indian companies grant credit for several other reasons such as the company position, buyer's status and requirement dealer relationship, transit delays, industrial practices, transit delays etc.
0 comments:
Post a Comment