Question

Who may bear the cost of trade credit? When would the suppliers absorb the cost of trade credit?

NO HAND WRITTEN ANSWERS PLEASE

Answer 1

As we know that a firm or company may receive trade credit from the suppliers when firm or company purchase merchandise from the suppliers. Suppliers normally offer trade credit to increase sales or for making good image in the minds of buyers.

Thus, Suppliers bear cost of trade credit. In other words we can say that seller (supplier) will bear cost of trade credit because they sell goods & services to the other parties and offer trade credit.

Now, let’s come to second part of this question;

We know that suppliers offer trade credit with a specified time period, in other words we can say that payment to be made by the buyer within given time period. Hence supplier will absorb cost of trade credit when supplier receives actual payment from the buyers.

So it is clear that supplier will absorb cost of trade credit at the time of final settlement of transaction or payment.