ABSTRACT
Credit involves the provision of goods or services in exchange for payment which is deferred, or it may take the form of a payment in advance for goods to be received. It can arise from transactions between firms, or from exchanges between firms and households, or domestic and overseas companies, and so on; the main concern here is with domestic trade credit. In company balance sheets it generally appears as 'trade and other creditors and accounts', and 'trade and other debtors and payments in advance', the former appearing on the liabilities side as sums owed by the company, the latter as an asset representing sums due to the company. Trade credit given is the amount of money owed to the firm by its customers; trade credit taken is the amount the firm owes to its suppliers. The credit period relates to the time, a few days or several weeks, between the delivery of goods and payment for them. Thus the total credit provided by a firm to its customers may be taken as the product of sales over the credit period and the credit period itself, so that it may alter with changes in either item. Normally, the amount of trade credit given varies with the volume of turnover, while trade credit taken tends to be sensitive to changes in stocks and work in progress. That is, sales are assisted by extending credit, while short-term stock acquisition is financed by obtaining credit from suppliers.
