Question

1) Describe the difference in one-part and two-part trade credit terms.

2) Describe the tangible and intangible costs related to late payments

Answer 1

1) Difference in one part and two part trade credit terms:

• One part trade credit terms

?   In this case, the supplier requires full payment within a period specified in the contact. For Example, a "net 30" agreement would mean that the payment is due within 30 days of delivery.

• Two part trade credit terms

? In this case the supplier offers a discount if payment is made within a certain period, which is shorter than the net payment period. For Example, a "2/10 net 30" agreement would give the buyer a discount of 2% if payment is realised by the tenth day following delivery. If buyer fails to take advantage of discount, He/She still has additional 20 days.

2) Tangible and Intangible cost related to late payment

• Tangile Costs?

? Tangible costs are quantifiable costs that are directly related late payments. For example, Interest cost, Late payment charges

• Intangible Costs

? Intangible costs are unquantifiable costs related to late payments. For example, Loss of reputation, Loss of competitive advantages