Is it true that most firms are able to obtain some free trade credit and that additional trade credit is often available, but at a cost? Explain.

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Is it true that most firms are able to obtain some free trade credit and that additional trade credit is often available, but at a cost? Explain.

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Is it true that most firms are able to obtain some free trade credit and that additional trade credit is often available, but at a cost? Explain.

Explanation & AnswerSolution by a verified expert

Explanation

Trade credit is generally available free of cost and the firm should pay the entire amount before the stipulated dates otherwise the firm would be subject to actual cost of purchasing on credit. This means if the firm will make the payment during the discount period, it has obtained free trade credit however, taking additional trade credit by making the payment after the discount period can be quite costly.

Verified Answer

The firms can acquire free trade credit easily by making the payment within the stipulated time. However, if the firm pays after the discount period then it will be subject to additional trade credit.

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