Question

Critically discuss the effect of increasing the amount paid upfront when corporations make capital purchases, focusing on the benefits and drawbacks

Answer 1

When the Organization is making the upfront payment then its clear that the organization is planning for something big or say good. Because of these the company makes the payment earlier to make the good will in front of the Debtor. So the Debtor will make available the materials on time when the company needs it. As when the company starts the advance payment it shows that the company wants the material on time so that the processing of that raw material can be done on one time or before time.

This also helps the companies to make the good name in front of the party as there is no issue of payment with this organization. This helps the organization to increase the credibility in front of the party and if the organization wants some material on credit there party does not hesitate to give him as the trust is been built between both of them.

But there are also some drawbacks while making the upfront payment sometimes the organization makes the advance payment and the party doest not send the materials on time this may cause the loss to the organization as the processing of raw material will not be done on time.

In some cases the organization wins the trust of the party and by making always advance payment and later on demand for the the credit purchase due to strong trust purpose party gives the material but the organization does not make the payment on time and holds back the payment of party for a longer period of time.