Define each of the following terms: l. Stretching accounts payable; free trade credit; costly trade credit

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Define each of the following terms: l. Stretching accounts payable; free trade credit; costly trade credit

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Define each of the following terms:
l. Stretching accounts payable; free trade credit; costly trade credit

Explanation & AnswerSolution by a verified expert

Verified Answer

Stretching account payable - It is the practice of the companies to intentionally pay accounts payable late without affecting its credit policy. Stretching the accounts payable helps the company in meeting its liquidity and operational needs.
 
Free trade credit - Trade credit is said to be as free trade credit when no extra amount is paid by the company to the creditors as the payment has been done within the given credit limit. In other words, it is the credit that the company has received during the discount period.
 
Costly trade credit - Costly trade credit is the credit taken by the company in addition to free trade credit. The cost of costly trade credit is equal to the amount of discount lost.

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