Short-term Sources — Part 2: Trade Credit, Advances, Factoring, ICDs and Instalment Credit: visual lesson, ISC Class 12 Commerce

Lesson

More Short-term Sources

Part 2: credit from suppliers, money from buyers, factoring, inter-corporate deposits and instalment credit.

In this lesson you will

State the merits and demerits of trade credit and customer advances
Explain how factoring converts receivables into cash and evaluate it
Describe inter-corporate deposits and instalment credit

Part 2 at a glance

Compare

Trade credit and customer advances

Trade credit

Suppliers let the firm pay later for goods received.

Customer advances

Buyers pay part of the price before delivery.

Table comparing trade credit and customer advances on who gives them, timing, which firms use them, and their main risk
Trade credit	Customer advances
Given by suppliers	Given by buyers
Firm pays after receiving goods	Firm is paid before delivering
Open to almost every business	Mainly for made-to-order or scarce goods
Risk: overtrading; lost cash discounts	Risk: penalties for late delivery

Check your understanding

Quick check: paying the supplier later

A bangle workshop gets beads now and pays 45 days later. This source is…

Question: Multiple choice

Multiple choice1 mark

Bundi Bangles, an imagined workshop in Rajasthan, receives lac and glass beads from its supplier and pays 45 days later, after selling the bangles. This source of finance is

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