Trade credit

• What is trade credit?

  A financing option for businesses
• How long may businesses give firms to pay for certain purchases?

  One or two months
• Why is trade credit useful for small firms?

  It allows time to earn needed money
• What could happen if a firm makes the payment too late?

  They could incur a large fee
• What effect does paying off debt have on a firm's costs?

  It increases the firm's costs
• What should a firm ensure when paying off debt?

  That it can cover the increased costs
• What is a potential consequence of having a fee when paying off debt?

  It will increase the firm's overall costs
• Why is it important for a firm to manage its costs when paying off debt?

  To ensure financial stability and sustainability
• What are the key considerations for firms using trade credit?

  • Time to earn money for payments
  • Risk of incurring fees for late payments
  • Impact on overall costs when paying off debt
  • Need to ensure coverage of increased costs