2.3 Discussion: Pay Terms Debate (Response)

         INITIAL POST BY HA VO

Every business needs capital to run, and they're no exception to that matter. Capital can be included in many different ways; it can be held in deposit accounts, tangible machinery like production types of equipment, storage buildings, and more ( Cameron Jan 2016).  There are two different types of capital; fixed capital and working capital.  The fixed capital can be categorized under company software, brand names, bank accounts, stock, or company building.  Working capital is funding; it can be interrupted if payment is not received timely.  Customers are expected to pay when they get their products and services done.  However, unpay customers past their pay period can negatively affect the company.  From the customer point of view, the longer the lengthy payment term, the more favorable for the customers to use the cash to cover other expenses.  The delate of paying their bills will increase the chance of success in their business to use the cash flow somewhere else to generate more income by buying time. At the same time, customers can use their working cash capital to fulfill their daily business needs.  The customers can also use the term payment without the burden on interest charges.   The longer the payment terms, the more cash for the customers on their hands to run their own business with protection.  Customers are also more attractive to buy more from suppliers with flexible payment terms.  Customers are less worried about paying more interest on working capital loans to use the suppliers' supplies to generate income and profit.

 

            Most suppliers want to make a sale all day long. The supplier wants to sell it product fast and in large amount if possible.  There are many credit forms out there to promote the sale. Many suppliers offer a deal on credit terms for fast selling, so that product movement is staying active.  The more products sold, the more the business growth.  However, if they are all sold on pay terms credit and not pay on time, it can block the working capital.  Working capital not available can negatively damage the business.  Therefore, if the gap between the payment of the sold good on credits and the operational capital needs is too large, the company can be in trouble.  At the same time, suppliers don't want to be so strict on credit payment terms; they want to be careful not to lose their buyers to their competitors. 

 

            Hebrew 13:16, do not neglect to do good and to share what you have, for such sacrifices are pleasing to God. It is a helping hand to other businesses to run their business smoother with payment terms. It is like a short-term loan with no interest. It is ethical for trade credit in buying power, with the agreement that payment will be received at the future's agreed date.   Since the suppliers usually provide goods or services already to the customers, they need to fill the payment terms. 

 

 

References

 

            Cameron, Amanda (Jan 15, 2016).  What is Capital?-A Guide for Your Small Business Accounting.  Retrieved from What Is Capital? | A Guide for Your Small Business Accounting (patriotsoftware.com)

            Bible Hebrew 13:16