Trade credit

Accounts payable, also called trade credit, are the major source of short-term financing. Accounts payable normally amount to about 40 percent of the current liabihties of a manufacturing company. Such short-term financing is relatively expensive when available discounts are lost. 

The catering/restaurant channel is considered a good outlet market except for longterm trade credits. The retail organic shops are also considered a good marketing channel, but they sell small volumes and do not meet fast-growing market equirements. 

Credit spread products are a rapidly growing class of credit derivative. The spread in the following sections relate to a credit spread over a benchmark security. However, the traded credit spread could also refer to the CDS spread. 

Finally, on the asset side, CDS frequently trade wider than cash bonds for the same credit, and the ability for investors to access this basis adds significant potential spread to any deal. We argue this positive basis available on the same credit is a benefit distinct from the flexibility of choosing new assets, which is described above. For particular wide-trading credits, the basis might easily exceed 50 bps, or in other cases go negative. Because investors will naturally select credits with favorable basis, the benefit also has significant potential value. ... 

Credit default swaps can be used to trade credit spreads. Say investors believe the credit spread between certain emerging-market government bonds and U.S. Treasuries is going to widen. The simplest way to exploit... 

Lead development of a viable CO2 emission trading credit system to ensure that the lowest-cost options for abatement of CO2 are found and implemented. BP s approach to this important option is described on its Web page and is not discussed fiirther in this chapter. ... 

Glenn Crosby, Washington State University First, a comment. I certainly am impressed with trading credits. It also gets at what is easy to do, but that s finite. In other words, you ll run through this pretty quickly if, as is suggested, two-tenths of a gigatonne of carbon is consumed as the feedstock of the chemical industry annually. Do you know if this includes all chemical production or just the chemicals themselves ... 

Access to technology and information was also generally constrained. Some firms relied on hard-pressed CEO s visits to trade fairs, and on established suppliers, for technical information, for training and upgrading support, and sometimes for trade credit. Ensuring quality of inputs from Asian suppliers was a constant challenge. Machinery suppliers -predominantly Indian or Chinese - installed, trained and provided spare parts and advice. Two firms had gained external donor support for... 

Additional practical changes that would shift the balance back towards local production include effective implementation by TFDA of their formal commitment to fast tracking of tests and registrations for local products (which may require additional TFDA resources). Providing trade credit for local suppliers to public procurement, as well as to overseas importers, would also rebalance the incentive structure, as would more timely funding by the Ministry of Finance for procurement by MSD of locally contracted supplies. 

Trade credit and working capital the view from the firms... 

Trade credit is therefore a cheap source of short-term, external, in-kind finance, advanced not as money but goods on credit. If firms understand how to handle finance (if they have good finance capabilities, see Chapter 15), they can use trade credit to reduce cautionary cash holdings thereby alleviating cash flow problems. 

However the economic deterioration of the 2000s decade in Zimbabwe caused a high level of uncertainty, shortage of foreign currency and increased country risk. Consequently, local firms found it difficult to access trade credit from suppliers for APIs and excipients. The dearth of trade credit and reliance on expensive bank finance throttled financial breathing space for the companies. 

Berlin, M. (2003) Trade credit why do production firms act as financial intermediaries Business Review, 3, 21-28. 

Fafchamps, M. (1997) Trade credit in Zimbabwean manufacturing. World Development, 25 (5), 795-815. 

Fisman, R. and Love, I. (2003) Trade credit, financial intermediary development, and industry growth. The Journal of Finance, 58 (1), 353-74. 

Gianetti, M., Burkart, M. Ellingsen, T. (2011) What you seU is what you lend Explaining trade credit contracts. The Review of Financial Studies, 24 (4),... 

Nilsen, J.H. (2002) Trade credit and the bank lending channel. Journal of Money, Credit and Banking, 34 (1), 226-53. 

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