What Is a Business Line Of Credit?

Commercial credit refers to the inter-firm loan relationship formed in commodity transactions due to deferred payment or advance payment. Specific forms include accounts payable, bills payable, and accounts received in advance. Advantages and disadvantages of commercial credit financing: Advantages: The biggest advantage is that it is easy to obtain. If there is no cash discount or the use of non-interest bearing notes, commercial credit financing does not bear the cost. Disadvantages: Higher costs when giving up cash discounts. ^[1]

Commercial credit

There are three main explanations of commercial credit:

1. Commercial credit: due to delays in normal business activities and commodity transactions

After the founding of New China, China's commercial credit has gone through three stages:

1. During the recovery of the national economy and the "One Five-Year Plan", China has played a positive role in commercial credit.

From

The fundamental reason for commercial credit is that under the condition of a commodity economy, during the industrial capital cycle, various enterprises depend on each other, but they are

1. Commercial credit is the credit provided by commodity producers or between producers and sellers in the form of commodities. The loaned capital is the commodity capital to be realized.

2. Commercial credit is mainly credit provided by functional capitalists in the purchase and sale of commodities.

3. The degree of commercial credit development depends directly on the production and distribution of commodities.

That is to say, the quantity and scale of commercial credit are compatible with the quantity and scale of industrial production and commodity circulation, and they are consistent in the dynamic trend.

From the perspective of law, commercial credit has four characteristics:

1. Commercial credit is property, that is, it is a materialized credit. An important criterion for measuring the creditworthiness of a commercial subject is the amount of property it owns. Therefore, China's company law has established

1. Commercial credit is universal .

It can be said that as long as there is commercial activity, commercial credit exists. Commercial credit, as a financing method, is easy to obtain. It does not need to go through formalities, and if there is no cash discount or interest-bearing notes, it does not need to pay financing costs. Businesses can easily get it. So it is common in business activities.

2. Among all the different types of economic forms, new economic forms or industries are particularly prominent.

Such as

The main forms of business credit:

Accounts payable

Accounts payable is a business credit provided by the supplier to the business. Because buyers often pay after a certain period of time, commercial credit has become a short-term source of funds for enterprises. If the enterprise stipulates that all bills should be paid within a few days after the receipt, commercial credit becomes an inherent source of funds that changes with production turnover. When an enterprise expands its production scale, its purchases and accounts payable increase correspondingly, and commercial credit provides some of the funds needed to increase production.

Commercial credit conditions often include the following two types: (1) There is a credit period but no cash discount. For example, "N / 30" means full payment according to the invoice amount within 30 days. (2) Credit period and cash discount are available. For example, "2/10, N / 30" means that the payment within 10 days will enjoy a cash discount of 2%.

Suppliers stipulate cash discounts in credit terms, the main purpose of which is to speed up capital recovery. Companies should consider carefully when deciding whether to enjoy cash discounts. The cost of giving up cash discounts is often high.

Cost of giving up cash discount = discount percentage / (1- discount percentage) × 360 / (credit period-discount period) ^[2]

1. The advantages of commercial credit are convenience and timeliness.

2. The limitations of commercial credit are mainly reflected in:

1) Limitations of commercial credit scale. Affected by the quantity and scale of individual enterprise products.

2) Limitations of commercial credit direction. Generally provided by the seller to the buyer, subject to the restrictions on the flow of goods.

3) Limitations of commercial credit terms. Limited by the production and commodity circulation cycle, generally only short-term credit.

4) Commercial credit

business

At the end of 2001, with the US energy giant

(1) From the perspective of the whole country and society, commercial credit has saved and used capital and activated the market.

Funding is an important condition for economic development. Marxist political economy ranks people first among all factors of productivity. However, in reality, we do not lack people. So many workers are difficult to find employment. An important reason Lack of funds. With the money, even the skills are almost enough to start slowly. In the case of severe shortage of operating funds, the hope of enterprises to obtain bank credit is also slim. And commercial credit often makes the operator dead. It turns the supplier's upset inventory into the dealer's floor fund, and turns the idle facilities of the operator into the comfort and satisfaction of consumers, which benefits all parties and effectively solves the funding problem. Looking at the economic development of the past decade, the huge role of commercial credit is everywhere. From the mushrooming supermarkets, the online trading in all directions, the convenient and fast logistics consignment to the blooming real estate industry, it can be said that commercial credit cannot be separated Support, with commercial credit, it can be said that small money can do big things, even money can do things.

(2) For suppliers, commercial credit helps them reduce inventory, promote sales, and expand market share.

Suppliers sell goods (services) to customers on credit, without increasing their own costs and without affecting their own capital flows. In addition, excessive goods are held in the warehouse, more warehousing and storage costs need to be paid, and more liabilities for accidental losses are assumed. After being sold to customers on credit, it not only reduces storage costs, but also eliminates contingent losses that may be caused by accidents such as fires and floods. At the same time, it is more important to win customers to seize the opportunity, promote sales, expand market share, and occupy the market. In this sense, it is beneficial to others.

(3) For retailers, capital has been mobilized, their power has been strengthened, and stable sources of goods have been obtained.

As much as possible, make the products in the store as colorful, assorted and assorted as possible. It is a common management method for all retailers, including large supermarkets and individual vendors. However, this requires a considerable amount of funds. Credit purchase-first picking up and then paying, is the most willing and commonly used strategy of retailers and middlemen to solve this problem. In addition to solving financial difficulties, the second benefit of business credit is increased competitiveness. An assortment of goods has increased the desire and confidence of consumers to purchase and expand sales; the third is to stabilize suppliers and obtain a stable supply of goods, and to provide an extra layer of protection when goods and services are defective, reducing Your own risk.

(4) For consumers, it is conducive to reducing the prices of goods and services, and enjoying faster, solid and high-quality consumption.

Commercial credit has accelerated the turnover of funds and commodities by operators, reduced circulation costs, and shortened the time from production to consumption, which will definitely reduce commodity costs and enhance freshness and timeliness.

(5) For creditors, through advance payment of goods or advance payment, higher gross profit can be obtained than cash transactions, and income can be improved.

Generally speaking, goods that cannot be sold on the spot and idle funds that are not needed for other purposes will not directly generate benefits in their own hands, and prepayment to the counterparty can be used as a condition to increase the sales price of their own goods, or Require the other party to reduce the purchase price of the goods they purchase, thereby expanding the price surplus and generating direct benefits. For example, if a consumer pays for mobile phones in advance, a small amount of prepaid calls does not increase consumers' excessive financial pressure. But with prepaid phone bills, consumers can get cheaper prices than cash transactions or late payments.

(6) For the debtor, advance payment of customers' goods or commodities not only directly increases the available funds and enhances the competitiveness, but more importantly, it can lock customers and always take the initiative in transactions.

The products of upstream suppliers were received in advance, which restricted their choice of customers who were able to compete with them, and obtained the offer to suppliers not to supply goods to customers who were able to compete with them, or to guarantee themselves in terms of quality and time of supply. Chips. The advance payment of the consumer's payment will limit consumers' choice of other merchants to a certain extent, and this promotion can attract more consumers, enhance the accuracy of sales expectations, and help stabilize and consolidate the customer base. For example, after a telecommunications company collects the customer's call charges in advance, in general, consumers are dispelled from the idea of choosing other telecommunications companies.

(7) For banks, commercial credit is flexible and convenient. It is faster and more efficient than strict credit rating, credit granting, and complicated review and approval procedures. It also relieves the bank's loan pressure and transfers some risk