4.1 Provide THREE (3) reasons for using trade credit. (6 marks) 4.2 Explain the competing objectives...

4.1 Provide THREE (3) reasons for using trade credit. 4.2 Explain the competing objectives associated with trade credit. 4.3 Suggest strategies for the effective management of creditors.

Solutions

Expert Solution

4.1 three reasons for using trade credit are as follows-

A. It can help in expansion of the sales

B. It helps in gaining through time value of money as when the the lagging strategies are adopted.

C. It helps in buying even if there are no cash available.

4.2. Competing objectives associated with trade creditors that the company would always be trying to get more of the trade credit in order to enhance the cash conversion cycle so that it will help the company in gaining a competitive edge and increasing the liquidity of the company in order to gain an advantage over its competitors

4.3 strategies for effective management of the creditors are-

A. Leading and lagging strategy which will be helpful for the company in better management of its payables and it will help the company in gaining a competitive advantage

B. Large amount of concentration of supplier in a few hands will help in management of better credit relationship

C.use of days payable outstanding in order to enhance the cash conversion cycle will be helpful for the company in the long run.

jeff jeffy answered 1 year ago

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