December 4, 2019

Commercial Credit

In recent years, small and medium-sized enterprises (SMEs) have implemented a series of strategies for their development. These meet the demands of the environment and technological advances that require more and more good management of the resources available to them. Some of these resources are financial, as well as those of planning, marketing, among others. All this in order to successfully face the reality of which they are part.


Commercial Credit

Commercial Credit

One of the strategies used is that of commercial credit , not being a generalized trend. This modality is used when small and medium enterprises have weaknesses. The unavailability of financial resources is one.

Commercial credit is a customary way of doing business in many industries. When a company or company does not meet the necessary requirements to access a credit from a financial institution, it can be received through suppliers. This is due to the fact that the experience in commercial relations between companies favors the emergence of mutual trust as well as the knowledge of the customer or buyer’s ability to pay.

In this sense, commercial credit becomes a form of short-term financing carried out by small and medium-sized businesses to their clients. At the time of acquiring a good or hiring a service through the so-called lines of credit; as for example, when credit products are purchased directly from the supplier who allows you to pay in installments and with greater flexibility than if you did it directly with a banking entity.


Commercial Credit in the 21st Century

Commercial Credit in the 21st Century

Currently, commercial credit as a financing instrument is frequently used among small and medium-sized companies. This is because providers tend to be more flexible when granting loans than financial institutions. Even more in times where inflation levels put pressure on the interest rate, which makes it difficult to take advantage of bank loans.

In addition, commercial credit serves to facilitate and adapt production to the movement of goods. This facilitates sales, production, capital development as well as increased profits.

When a small and medium business grants credit, it obtains an advantage over its competitors. If your competitors demand cash payment, users will prefer the credit. These companies, to grant this type of credit, must evaluate the reliability of the client. On certain occasions it is not feasible to grant commercial credit to anyone who requests it.

In this form of financing, the parties agree on the conditions and the period in which the debtor must pay the credit, in addition to the requirements that the clients must present in order to be granted a commercial credit , always being paid by the supplier, eventually providing data similar to those demanded by the banking entities, but that at the time of being granted are usually more beneficial than that of the banks, often affecting the percentage of interest to be charged, as well as the commissions and the required deadlines.

It is important to emphasize that when it comes to commercial credit it differs from the financial loan. The latter is the one that is requested before the banking entities through lines of credits or loans. When talking about commercial credit, reference is made to the financing that some companies grant to others through credit lines.


Commercial Credit Considerations

Commercial Credit Considerations

Some considerations to take into account to analyze a commercial credit may be to verify if there is any risk of late payment. This through the last payments or if there is any legal action for collection. This will determine whether a loan can be granted quickly. Also the payment history will allow you to observe how you handle your debts, verifying the punctuality in them.

It is also important to know if the company is bankrupt, if it has pending lawsuits, embargoes or lawsuits. Not necessarily a delay is caused by a financial matter, sometimes it is a reason for a disagreement. Companies that have been operating for several years are more stable.

In short, the fundamental purpose of companies that use commercial credit as a form of financing is to achieve growth. This can be achieved by postponing expenses, allowing them to play with the amount financed and achieving great benefits.

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