Question

Which type of credit requires that borrowers carefully manage the debt so it doesn't get out of control? explain why this type of credit requires more careful management.

Answer 1

The correct answer is ''trade credit''.

Step-by-step explanation:

Trade credit is the one that is extended between to traders when the goods or services are bought on credit, therefore it is a business to business (B2B) agreement between the parties that helps a lot in facilitating the purchase of the goods or services because it allows the buyer to buy in a determinate time in the future and not requireing to have too much money in the present to face the purchase.

This type of credit requires more carefull management because of the debt that the buyer is getting into. For example, if the sales are good then the buyer can make a cheque and pay quickly to the operator but however if the sales are going bad due to a low cash flow then the buyer needs to take good care of the accounts so that in the right time he would be able to pay the debt, so that the company does not enter in a bankruptcy process.

Answer 2

Trade Credit

Step-by-step explanation:

A trade credit is the buying of goods on credit to be payed later.

It requires more careful management because when not managed well it may cause, overstocking goods, loss of good brand recognition in the eyes of the creditors and even loss of future trade facility.

This is very key when the payment period and the debtors collection period do not have so much difference.

Moreover Credit management is the heart of the working capital of an organisation.