Fundamentals of Financial Management Study Set 1
Quiz 15: Working Capital Management
One of the Effects of Ceasing to Take Trade Credit
One of the effects of ceasing to take trade credit discounts is that the firm's accounts payable will rise,other things held constant.
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"Stretching" accounts payable is a widely accepted,entirely ethical,and costless financing technique,which is particularly useful when suppliers' production plants are at full capacity .
An informal line of credit and a revolving credit agreement are similar except that the line of credit creates a legal obligation for the bank and thus is a more reliable source of funds for the borrower than the revolving credit agreement.
The maturity of most bank loans is short term.Bank loans to businesses are frequently made as 90-day notes which are often rolled over,or renewed,rather than repaid when they mature.However,if the borrower's financial situation deteriorates,then the bank may refuse to roll over the loan.
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