Cost to Forgo a discount The approximate interest cost over a variety of payment decisions for 2/10, net ? Payment Date Annual rate of interest 744.9% 20 74.5 30 37.2 60 14.9 90 9.3 11-11 days from invoice date
11-11 Payment Date* Annual rate of interest 11 744.9% 20 74.5 30 37.2 60 14.9 90 9.3 * days from invoice date Cost to Forgo a Discount The approximate interest cost over a variety of payment decisions for 2/10, net ____?
S-t-r-e-t-C-h-i-n-g Account Payables Postponing payment beyond the end of the net period is known as stretching accounts payable or leaning on the trade. Possible costs of stretching accounts payable Cost of the cash discount (if any) foregone Late payment penalties or interest Deterioration in credit rating 11-12
11-12 S-t-r-e-t-c-h-i-n-g Account Payables Cost of the cash discount (if any) foregone Late payment penalties or interest Deterioration in credit rating Postponing payment beyond the end of the net period is known as stretching accounts payable or leaning on the trade.? Possible costs of stretching accounts payable
Advantages of Trade Credit Compare costs of forgoing a possible cash discount against the advantages of trade credit Convenience and availability of trade credit Greater flexibility as a means of financing 11-13
11-13 Advantages of Trade Credit Convenience and availability of trade credit Greater flexibility as a means of financing Compare costs of forgoing a possible cash discount against the advantages of trade credit
Who bears the cost of Funds for Trade Credit? n Suppliers -when trade costs can not be passed on to buyers because of price competition and demand n Buyers -when costs can be fully passed on through higher prices to the buyer by the seller o Both - when costs can partially be passed on to buyers by sellers. 11-14
11-14 Who Bears the Cost of Funds for Trade Credit? Buyers -- when costs can be fully passed on through higher prices to the buyer by the seller. Both -- when costs can partially be passed on to buyers by sellers. Suppliers -- when trade costs can not be passed on to buyers because of price competition and demand