ABSTRACT
Bankruptcy or voluntary liquidation is caused not only by a lack of cash, but also by an inability to raise cash in the form of loans or credit to meet immediate commitments, because creditors, investors and possibly lenders of money – usually the banks – have lost confidence in the business and are not convinced that the company can continue to trade in a profitable and viable way. This loss of confidence is an important factor because it is the existence of such confidence that permits overdrafts to be obtained and normal trade credit to be received, and a loss in confidence would result in existing creditors pressing harder for payment. Trade credit is an important factor in determining most companies’ short-term cash requirements and should trade credit be withheld, the short-term cash requirements increase significantly. The withholding of trade credit simply means that the suppliers to a company demand cash on delivery rather than invoicing, say, at the end of the month and requiring payment one month later.
