Trade creditors are the organization’s regular suppliers of goods and services. The business owed money to them and hence is an integral part of the working capital equation.

The good thing is that:

the higher the amount owed to the trade creditors, the more working capital has been extended by them which is at NO COST to the business.

The bad new is when a business over-exceed its credit term from its trade creditors, the repercussions are as follows:

· it loses out on cash discounts,

· supplies charges overdue interest charges,

· upset their suppliers who may refuse future orders,

· in future, suppliers will get wiser by imputing higher costs when selling to the business;

· the suppliers may pursue legal actions against the company;

· may damage the company’s credit rating, and

· even find themselves in court with additional costs and penalties to pay.

Credit periods vary from industry to industry with usual terms range from 1 to 3 months.

Just as in credit control, a settlement policy has to be in place so that invoices are properly authorised for payment and so that they can be paid when due with appropriate discounts deducted. A periodic report on the overall position of the trade creditors needs to be kept and monitor.

Article No.

Useful links to articles of same author

1

Understanding Trade Discount.

2

Understanding Cash Discount

3

Using Borrowings to enjoy cash discount