Trade credit has a portion that is _________if the payment occurs during the discount period.

1. costly 2. free

If the firm does not take the discount then the trade credit is_____________ .

1. costly 2. free

A(n) ______interest loan is one where interest only is paid monthly.

1. compounding 2.simple 3. effective

The _________ interest rate per day is the nominal interest rate divided by the number of days in the year.

1. compounding 2.simple 3. effective

Supply Chains and Working Capital Management: Accounts Receivable, Trade Credit and Bank Loans Accounts receivable are funds due from a customer and a firm's credit policy has a direct impact on the level of receivables held by a firm. The credit policy is a set of rules that consists of four variables: credit period, cash discounts, credit standards, and collection policy. The credit peniod is the length of time customers have to pay for purchases; cash discounts are price reductions given for early payments; credit standards reflect the financial strength of customers that must be exhibited to qualify for credit and the collection policy is the degree of toughness in enforcing the credit terms. Credit policy is important for three major reasons: (1) It has a major effact on sales. (2) It influences the amount of funds tied up in receivables. (3) It affects bad debt losses. The total amount of accounts receivable outstanding at any given time is determined by the volume of credit sales and the average length of time between sales and collections. This equation can be written as: Account receivables Sales per day xDays soles outstanding Firms generally make purchases from other firms on credit and they record the debt as an account payable. This payable is also known as trade credit, which is defined as the debt arising from credit sales and recorded as an account receivable by the seller and as an account payable by the buyer. Trade credit has a portion that is Select- if the payment occurs during the discount period. If the firm does not take the discount then the trade credit is.Select-The nominal annual cost of trade credit is calculated as: Nominal annual cost of trade cri-Diccoams oret 1(DaDoront pertantaer x Dysredit sontetan irre-Discomtprid Bank loans are another important source of shont-term financing for businesses and indiviuals. The costs oftheansvary and can be calculated in a number of afferent ways. A() -Selectiterest loan is one where interest only is paid monthly The -Select-interest rate per day is the nominal intarest rate divided by the number of days in the yoar. The interest charge for the month is calculated as follows Interest change for month-(Rate per day)(Amount of loan)(Days in month) Costly trade credit can be very expensive, so often a firm will choose to borrow from a bank and pay trade discounts rather than paying after the discount period. Firms will choose the lowest-cost source