IN modern world, in a highly competitive environment, the issue of accounts receivable management plays an important role in improving management efficiency current assets any company. Companies may invest significant amounts of money in accounts receivable, thereby depriving themselves of the opportunity to carry out active investment activity, depriving yourself of mobility and reducing liquidity.

Accounts receivable management is carried out through the development credit policy, namely, deciding who should provide commodity credit, under what conditions and for how long. A well-developed credit policy allows you to maximize cash flow, compensate for the risk taken by the company, which ultimately increases the value of the company and the welfare of shareholders.

Credit policy involves solving the following important issues:

• Determining the term of the loan (the period of time during which the debtor is granted a deferred payment);
• Credit standards (determining the buyer's credit rating and the resulting allowable loan amounts);
• Collection system (collection policy and procedure accounts receivable, indicators reflecting violations in payment, etc.);
• Discounts provided for early payment (the amount of discounts and the period during which they can be used).

In order to resolve these issues and develop a credit policy that is adequate to the chosen development strategy of the company, it is necessary:

• Analyze existing accounts receivable by timing, from the point of view of payment discipline, by turnover;
• Determine possible volume Money, used to finance accounts receivable and change the company’s profit when different conditions lending;
• Create standards for determining customer credit ratings;
• Develop criteria for granting loans;
• Ensure the use of modern credit instruments;
• Monitoring the implementation of credit policy and introducing components related to payment for sold goods into the motivation system for managers.

Let's look at each of the stages in more detail.

The following indicators are used to analyze accounts receivable:

• Accounts receivable turnover ratio Kdz:

Kdz = Total sales volume / average value accounts receivable.
This ratio shows how quickly the company collects money from the client for the goods supplied.

• Accounts receivable turnover in days (average collection period):

DSO=Average Accounts Receivable/Average Daily Revenue from Credit Sales, or
DSO=365/Kdz
If this indicator exceeds the contractual (or regulatory) conditions, payments are received in violation of the established deadlines.

• The average amount of accounts receivable DZsr depends on the annual volume of sales on credit S and the average collection period DSO:

DZsr = S x DSO / 365
or
DZsr = S / Kdz

• Average enterprise investment in accounts receivable:

INVD = DSO x Total annual costs / Annual sales volume = DSO x share of costs in selling price

• Overdue accounts receivable ratio:

Kpdz = Amount of overdue debts / Total amount of receivables.

The results of calculations of the above described indicators are used when developing certain aspects of the company's credit policy.

Various reports are used to control the payment discipline of debtors. The accounts receivable report is designed to monitor the timeliness of debt repayment in accordance with contractual terms. This type of report can be generated once a week. It reflects the dynamics of the payment discipline of all clients in the context of issued invoices (Table 1).

Table No. 1. Accounts receivable report.

No.	Group	Client	Account/TTN	Shipping date	Amount to be paid	Regulatory payment date	Overdue period	Date of actual payment

It is advisable to supplement the report on settlements with debtors with a register of aging accounts receivable (Table 2), which reflects the distribution of debt by maturity for each debtor, as well as the percentage share attributable to each of the periods of delay in the context of clients and in general total amount accounts receivable. This type It is advisable to prepare a report at least once a month, as well as summarize the results for the quarter and for the year.

Table No. 2. Accounts receivable aging register.

№ p/p

Group

Client

Debt distribution by maturity

total amount Owed- ness, thousand roubles.

Share in total volume (%)

Up to 30 days

30-60 days

60-90 days

Over 90 days

Thousand roubles.

Thousand roubles.

Thousand roubles.

Thousand roubles.

Total

If the business is subject to seasonal or cyclical fluctuations, then analysis of the accounts receivable aging register may lead to erroneous conclusions, since fluctuations in sales volume affect percentage distribution of receivables. Therefore, in this case, it is advisable to also draw up a statement of outstanding balances (Table 3), which, in addition to monitoring the status of the debt, allows you to predict its value.

Table No. 3. Statement of outstanding balances.

The table is filled out as follows: from the revenue for each month of the quarter, the outstanding receivables are separated, and its share in the revenue is determined. For example, in January, sales revenue amounted to 100,000 rubles, and outstanding receivables for January at the end of the first quarter amounted to 50,000 rubles. or 50%. Such a statement must be prepared based on the results of each quarter and for the year.

At the next stage, the possible amount is determined financial resources, invested in accounts receivable:
INVdz = S* V*(DSO)/365,
Where
INVdz - investments in accounts receivable;
S is the planned volume of product sales on credit;
V - variable costs as a percentage of gross sales volume (production costs associated with inventory storage, administrative costs credit department and other variable costs);
DSO - average receivables turnover period (including taking into account overdue payments), in days;

To assess the consequences of changes in credit policy, it is advisable to use incremental analysis, which determines the size of the increase (decrease) in sales volume and costs as a result of changes in individual parameters of credit policy. By liberalizing the credit policy by providing large discounts, extending the lending period, easing the policy on collection of overdue debts, and easing credit standards, the company can expect an increase in sales volumes. At the same time, this will require additional investments to purchase more raw materials, materials, work force, the costs of maintaining increased accounts receivable will increase, the volume of bad debts will increase, the costs associated with providing discounts, etc.

In the process of incremental analysis, additional incremental income and additional expenses and if a positive incremental profit is expected, the decision to change the credit policy may be positive (subject to full compensation for the possible risk).

To determine the increase in accounts receivable as a result of changes in credit policy, subject to an increase in sales volume, the formula is used:

ΔDZ=[(DSON-DSOo)(So/365)]+V,
Where
So - current gross sales revenue;
SN—forecast gross sales revenue;
V - variable costs as a percentage of gross sales (excluding losses from bad debts, ongoing costs associated with financing accounts receivable, and the cost of providing discounts);
DSOо - collection period of receivables in days before changing the credit policy;
DSON—receivables collection period in days after a change in credit policy.

To determine the increase in accounts receivable as a result of changes in credit policy, subject to a decrease in sales volume, the formula is used:

ΔDZ=[(DSON-DSOo)(SN/365)]+V

ΔР=(SN-So)(1-V)-kΔDZ-(BNSN-BoSo)-(DNSNPN-DoSoPo),
Where
k is the cost of capital invested in receivables;
BN is the average volume of bad debts with a new sales volume (percentage of gross sales volume);
Bo - the average volume of bad debts at the current sales volume (percentage of gross sales volume);
DN is the estimated percentage of trade discount for the new sales volume;
Do is the percentage of trade discount at the current sales volume;
PN is the share of discounted sales volume in the gross sales volume after changes in credit policy (in%);
Rho is the share of discounted sales volume in the gross sales volume before changes in credit policy (in %).

Let's look at the above formulas using a specific example:

Company X sells products in accordance with the developed credit policy. Sales revenue in 2006 amounted to 960,477 thousand rubles. Variable costs account for 92% of sales volume, the price of capital invested in accounts receivable - 12%, bad debts - 1% of sales volume, collection period - 23 days, trade discount - 1% for payment before 5 days, credit period 20 days.

The possibility of changing the credit policy by increasing the discount to 3% and extending the loan term to 30 days is being considered. It is assumed that the change in credit policy will ensure an increase in sales volume to 1,100,000 thousand rubles, bad debts will remain at the same level, and the collection period will be 35 days.

Let's consider how accounts receivable will change under these conditions, for which we will use the formula for the increase in accounts receivable taking into account the increase in sales volume:
ΔDZ = [(35-23)(960477/365)]+0.92 = 43886 thousand rubles.

Thus, with an increase in the lending period, an additional 43,886 thousand rubles will need to be invested. into accounts receivable. This formula takes into account the incremental costs of accounts receivable associated with the previous sales volume and the costs associated with the increase in sales volume. The incremental costs of accounts receivable associated with the previous sales volume take into account the costs of direct financing and opportunity costs. The costs associated with accounts receivable due to an increase in sales volume take into account only the costs of direct financing.

Next, let’s evaluate the impact of the new credit policy on the company’s pre-tax profit:
ΔР=(1100000-960477)(1-0.92)-0.12*43886-(0.01*1100000-0.01*960477)-(0.03*1100000*0.5-0.01* 960477*0.5) = -7197 thousand rubles.

Thus, we see that changing the credit policy for the analyzed company is not beneficial, according to at least under these conditions, as profits are forecast to decline.

Determining standards for the creditworthiness of debtors is one of the main objectives of the company's credit policy. When assessing the creditworthiness (risk of non-payment) of potential customers, the following criteria can be used:

• total time spent working with a given buyer;
• volume business transactions with the buyer and the stability of their implementation in previous periods;
• receivables turnover indicator for a given buyer;
• volumes and terms of overdue receivables;
• financial indicators buyer's activities;
• market conditions commodity market;
• informal assessment of the client’s importance by the manager working with him.

To determine the numerical value of a client’s credit rating, all of the above criteria must be converted to a 100-point scale. In this case, the highest score on this scale is assigned to the most preferred value. Each criterion is then assigned a significance weight and a summary customer rating is generated.

Significance weights can be assigned either expertly or determined using a correlation coefficient based on statistics for past periods by determining the impact of each criterion on the repayment of receivables.

Based on the assessment results, all clients can be divided into groups as follows:

• A: with a score of 70 points and above. Buyers to whom credit is provided on standard terms, with the possibility of exclusive terms in the event of the strategic importance of a particular buyer or expected future economic benefits.
• B: from 50 to 70 points. Buyers to whom credit can be provided to a limited extent. A restriction may be imposed on the loan amount or on a deferred payment with subsequent strict control of the payment deadline;
• C: less than 50 points. Credit is not provided to buyers.

Although most credit decisions are subjective, some companies use statistical methods to assess the creditworthiness of their customers, namely multiple discriminant analysis. In this analysis, the dependent variable is the probability of failure to fulfill obligations, and the independent variable is the parameters characterizing financial stability client and his liquidity, for example ratio quick liquidity, the share of borrowed capital in the total amount of sources, the period of existence of the client’s company, etc. This analysis establishes the relationship between individual factors and the likelihood of default, and thus calculates the client's risk score. Based on the results of this analysis, clients are also ranked into risk groups, in accordance with which lending standards for the least risky groups are developed.

S is the volume of expected purchase by the client;
C is the cost price of a given volume of goods;
T is the period for which the loan can be provided;
r is the rate of alternative income for the enterprise.

Example:

The client plans to purchase goods in the amount of 2,000,000 rubles, the cost of this volume of goods is 1,840,000 rubles, the loan term is 20 days, the rate of alternative income for the enterprise is 12% (for example, the company can provide a loan to another organization at this rate). Let's determine the client's credit rating:
Rmin = 1840000*(1 + 0.12* 20 / 365) / 2000000 = 0.93

The interpretation of the result obtained is as follows: if the client’s credit rating is higher than Rmin, then it makes sense to sell the goods on credit to this client; if it is lower, then it is unprofitable.

The criteria for granting a loan include determining the maximum possible loan term and the size of the discount.
Possible term credit is usually related to the amount of discounts provided if the buyer pays for the goods earlier. In practice, the conditions for granting credit and discounts are formed as follows: “q / t; net T”, where:
q is the amount of the discount provided;
t—discount validity period;
T - loan term.

The amount of the acceptable discount is calculated using the following formula:

q = r /, Where
r is the rate of alternative income.

Example:

Company X wants to determine the amount of an acceptable discount if the loan term is set at 45 days, the discount period is 14 days, and the alternative income rate is 12%.
q = 0.12 / = 0.01 = 1%

Thus, an acceptable discount under these lending conditions for company X would be a discount of 1%.

If a company is experiencing some problems associated with a shortage of cash, it can either take a loan from a bank or speed up the flow of cash by providing additional discounts to customers. In this case, it is necessary to compare the resulting rate of alternative income with the actual rate of attracting financial resources, and if the rate of alternative income exceeds the actual rate, it is concluded that the discount is beneficial for the company. Otherwise, it is beneficial for the company to provide additional discount and it is advisable to involve Bank loan to cover the cash deficit. The company's alternative income is calculated using the following formula:

r = * 365/(T - t)

Example:

In conditions of cash shortage, company X can take short term loan or provide customers with significant discounts when paying for goods upon shipment. The loan can be obtained at an interest rate of 12% per annum. The company sells on “net 20” terms. Customers are ready to immediately pay for the goods if the discount is at least 2.5%. Is this beneficial for the company?
R = * 365/(20-0)=0.468=46.8%
r< r факт.
12%<46,8% → скидка невыгодна для компании.

In these conditions, it is more profitable for a company to take a short-term loan than to give a discount.

If the company is experiencing a serious cash shortage, in order to equalize the situation and the interest of customers in prepayment or timely repayment of debt for goods supplied by the company, it is necessary to develop quite attractive systems of discounts and benefits. For these purposes, you can calculate the break-even point, which will act as a threshold value when developing a discount system. The difference between the current profit percentage and the calculated minimum allowable is divided into segments and, in accordance with them, discounts are differentiated.

The discount system may include the largest discounts for prepayment, differentiated discounts for payments ahead of schedule, for timely payment, discounts for large volumes of purchases, etc.

Control over the execution of the company's credit policy is organized as part of the construction of a general financial control system in the company as an independent unit. Monitoring the execution of credit policy includes constant monitoring of debtors based on the validity of their inclusion in a particular group (ABC analysis), the timing of receivables, control of outstanding balances, collection periods, etc.

In general, to improve the efficiency of accounts receivable management, in addition to a well-developed credit policy, you can adhere to a number of simple rules:

• Automate the accounts receivable collection accounting system, since maintaining data on recording calls to debtors, client credit history, payment discipline and other data manually takes significant effort and time from the employees responsible for this area. The use of a single computer database throughout the company will significantly increase the efficiency of this category of employees and will simplify the entire procedure for analyzing customer credit history and developing a credit policy.
• Issue invoices to debtors a little earlier than due in the hope of earlier payment, or issue interim invoices by stages of work (if the business area and contractual conditions allow this).
• Encourage cash payments to speed up receivables turnover and reduce payment servicing costs.
• Motivate sales managers to receive payment from customers as quickly as possible by linking the bonus part of their payment to the funds received, and not to the volume of sales.
• Send a reminder to the debtor immediately the next day after the payment deadline. A written payment reminder must be addressed to the appropriate person. It should inquire if there is any reason for non-payment and ask for it to be reported immediately.
• If after a reminder the payment is not received within a short time (for example, a week), you should contact the person responsible for payments or the manager who made the order and insistently demand the payment, without postponing this procedure until later, since over time the likelihood of receipt payment is reduced.
• Differentiate accounts receivable accounts by size and coordinate the work of the personnel responsible for this area so that they are focused on the largest orders.

Currently, due to the development of the banking system and the expansion of the range of banking services, it has become possible to refinance accounts receivable, which, in the face of constant payment delays, is a way for the company to obtain the necessary funds at an early date. The main forms of refinancing of receivables used by companies are factoring, bill discounting and forfaiting.

Factoring- a tool for accelerating the receipt of payments and, thus, increasing the volume of working capital. The company enters into an agreement with a factoring company to collect overdue payments and manage accounts receivable.

Accounting for bills issued by buyers of products is a financial transaction for their sale to the bank at a certain price, set depending on the denomination of the bill, the period remaining until its maturity and the value of the discount rate applied by the bank.

Forfaiting combines elements of factoring and bill accounting and is used for long-term export deliveries, allowing the exporter to immediately receive funds by discounting bills.

Today, when the market economy is gaining momentum, such a sales sector as trade credit is extremely important.

This is the most convenient tool for selling products for both sellers and buyers.

Not every person has the opportunity to buy a new household appliance or vehicle and pay its cost right away.

Such people can receive goods or products with a deferred payment for its cost, without losing the opportunity to use it from the very first day of applying for a loan.

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The essence and features of trade credit

TC is a type of loan. It is formalized by signing an agreement, according to which the buyer gets the opportunity to use the product by paying its cost for some time.

Trade credit is beneficial for both the buyer and the seller of the goods. For those who take the product, the benefit lies in the fact that a person has the opportunity to use a product that his financial condition does not allow him to buy.

The downside in this case is a slight overpayment of the total cost of the goods, which the buyer takes in installments. As for the size of this overpayment, it depends on the amount of the interest rate on the loan, as well as on its term.

The seller of the goods also does not lose money, increasing the turnover of goods and capital. In addition, an important benefit for the seller is also the advertising of his company or company, where you can receive goods with a deferred payment for it in full.

TC can be received in the form of a product that the buyer takes in installments; he repays its residual value, as well as the interest on the loan, through a banking organization, which transfers these funds to the seller’s bank account.

Experts identify groups of clients that can be considered priority when using this type of lending:

• Enterprises whose scope of activity is retail trade, for example, transit.
• Manufacturing companies that export goods. For them, commodity lending helps to significantly increase the turnover of goods and profit.

Trade credit is a type of borrowing of goods. , in comparison with a bank loan, is that it is issued not in the form of cash, but in the form of goods. It is also worth noting that in this case, the goods act as collateral.

This means that the buyer must return the goods to the seller if he does not pay part of the cost on time or is late in paying interest rates.

We must also not forget the factor that this type of loan is short-term (the maximum period for which it can be issued does not exceed three years). You can also get a trade loan if one of the main conditions is met - payment of the down payment.

What types of loans can this type take?

Trade credit, as a type of commercial loan, can take several forms:

• With deferred payment. This is the most common form of lending among sellers who engage in retail or wholesale trade. Its essence lies in the fact that the seller of the goods provides the buyer with the opportunity to delay the deadline for final full payment for the goods. From the initial payment to the last payment, the right to use the goods or products belongs to the seller. The period for which the deferment is given, the dimensions are agreed upon by both parties and are fixed in the contract or agreement.
• Open account. A type of commercial loan, the essence of which is that the seller provides the buyer with an open account, into which he makes periodic payments of debt on the purchased goods. As a rule, this type of loan is not confirmed by any types of documents, but is registered only in the accounting books of enterprises. As practice shows, in order to obtain this type of loan, it is necessary to have a high level of trust between the buyer and the seller, for example, these could be two organizations that have been cooperating for a long time and completely trust each other.
• Consignment. In this case, the supplier of the goods (seller) is an exporter and organizes the delivery of a large batch of goods to the seller’s warehouse, subject to its sale. Payment for the shipped goods is carried out in its field. According to experts, this type of loan can be considered the most financially secure.
• Bill. This form is the most promising and modern type of commercial loan. Bills of exchange are issued for different maturities, which are previously agreed upon between the buyer and seller. This document acts as a guarantee for the seller that the loan will be repaid by the buyer within the period specified in the bill, the buyer must fully repay the debt in one time. Often they also use a bill at sight, which obliges the buyer to repay the loan debt on the day the seller presents this bill to him.

The use of any type of deferred payment implies a prohibition on any type of influence of the seller on the buyer that has a non-financial form. This may be the provision of low-quality or damaged goods or products; promotion and termination of cooperation with other sellers or buyers, etc.

Advantages, disadvantages and rules for using TC

Like any type of monetary relationship, trade credit has two sides - positive and negative.

Positive:

• You can get a loan in a short period of time.
• It is possible to directly participate in the formation of all clauses of the contract or agreement for the provision of a loan.
• The buyer can individually decide exactly how he will use the goods purchased in installments.
• The interest rate is much lower than for other types of lending.
• A trade loan can be issued without involving an intermediary, which will significantly reduce the cost of paying for their services.

Negative:

• There is a fairly high degree of risk.
• You can take out a cash loan from a banking organization, the amount of which will be significantly lower than the amount that can be obtained for the cost of a commodity loan.
• One of the mandatory conditions for receiving a TC is making a down payment.
• The right to the goods remains with the seller from the first to the last payment and repayment of the outstanding interest rate.

The rules for using a commercial loan can also be applied to a commodity loan:

• Often, when a person decides to take out a shopping mall, such a factor as the demand for the purchased product, which he takes on credit, is not taken into account. This is a huge mistake.
• If a product that is known to be illiquid is taken as a loan, it is necessary to demand from the seller smoother and easier loan conditions, including the interest rate.

Before purchasing a product in installments, you should carefully analyze the product market. This is necessary so as not to take more goods than can be sold.

You should not trust the selection of goods to your employees. They may not take into account your future plans for the sale of this product.

When drawing up an agreement for the provision of a commodity loan, you should pay attention to its written form, otherwise it will be completely impossible to prove anything.

You should not violate loan repayment terms and interest rates. This may result in the seller canceling and taking the item back. This is because, according to the law, the seller remains the owner of the goods until the final payment is made.

It is necessary to calculate in advance the possibility that the product will not be sold completely and immediately. This will result in late payments.

Sellers trust only those buyers with whom they have been cooperating for a long time. Having earned the trust of the seller of the goods, you can count on more preferential terms for obtaining a trade loan.

You should not rush from one seller to another - this is not in favor of the buyer. At the same time, if the seller failed once, the possibility that this will happen again cannot be ruled out. You shouldn't give him a second chance.

Registration procedure

According to statistics, approximately 30% of the population of our country at least once in their life encounters a trade loan.

Therefore, you just need to know how to do it correctly, what to pay attention to.

A commodity loan is any loan for the purchase of goods, which has its own specifics and design features:

Select the required product or store where the TC will be issued.

First of all, you need to be absolutely sure that purchasing this product is really necessary.

It is also worth paying special attention to the choice of the company or store where the loan will be issued. At the same time, the seller should have as many bank creditors as possible. The number of shares for which the product can be purchased depends on this.

Loan program at a creditor bank. It is quite difficult to figure out this issue on your own, of course, if the buyer does not have the necessary knowledge.

Credit terms

When drawing up an agreement or agreement to issue a trade loan, you should definitely pay attention to such points as the term of the loan, the size and timing of periodic repayments, the interest rate, types of penalties for late payment, etc. Whether the commercial loan will be beneficial depends on this.

Registration procedure

To do this, it is enough to have your passport with you. The buyer has the right to directly participate in the preparation and discussion of each clause of the contract or agreement.

You must have with you the amount of cash that will be made as a down payment. In addition, you need to have a mobile phone with you, this may be necessary to confirm personal data.

Before you sign, it is best to read it again very carefully and slowly, paying attention to not the smallest details.

Making a down payment

After signing all the documents, you can make the first payment to the cashier.

The contract must also stipulate the conditions and guarantees for the return of goods that were purchased in installments.

If an item was taken on credit, this in no way means that it cannot be returned.

Having discovered any defect in the purchased product or in the event of frequent troubleshooting or malfunction of the product, the buyer has the right to return it within the first 15 days after the contract was concluded.

If the buyer has used the product for more than the specified period, it can be returned only until the date specified in the warranty card. Therefore, when buying goods on credit, it is necessary to require the seller to fill out a guarantee coupon.

The seller is obliged to draw up a return statement that clearly states the reason for this process.

Once completed, on the same day you should contact the bank through which the debt was paid, having with you all the necessary documents and receipts.

This must be done because interest will be charged for each day the product is used, regardless of its return. What is important is the date when the buyer contacted the bank, and not the date when the goods were returned to the seller. Bank specialists will draw up an act of termination of the loan agreement.

The buyer will have to submit an application for a refund. The application must indicate the exact amount that has already been paid to repay the loan, as well as the amount that still needs to be repaid.

Until the date the bank has finalized and completed the procedure for terminating the loan agreement or agreement, payments on the trade loan cannot be stopped. This may result in the buyer being assessed penalties for goods already delivered to the seller.

The banking organization will issue a special document indicating the termination of the loan agreement and the complete absence of debt under the Labor Code. After this, the buyer will be refunded all funds that he paid during the use of the product.

As for the return of the funds that were paid by the buyer as interest on the loan, the buyer should go to court. In this case, the court will pay attention only to the amount that was paid by the buyer for the period when the goods had not yet been returned, but he was not able to use them due to its malfunction.

There are often cases when the seller refuses to accept the goods back, and the bank refuses to terminate the loan agreement. In this case, the buyer has no choice but to file a claim in court. As practice shows, if such a situation arises, it is best to seek help from an experienced lawyer.

The interest rate depends on several factors:

• Credit term.
• The cost of goods purchased in installments.
• Relationship between buyer and seller.

This indicator can be of the following types:

• Floating rate. Its size is not clearly established, but depends on the loan term and the amount that has not yet been repaid. This type of bet is very popular among buyers.
• Fixed. This type of interest rate is constant and unchanged throughout the entire term of the loan agreement.

Trade credit is a type of loan that is extremely popular among buyers. When designing it, you should take into account all the points, and especially your capabilities.

You can watch the video about the basic procedures for obtaining a trade loan:

Submit your question in the form below

Trade credit ( English Trade Credit) is the most accessible, and therefore the most common spontaneous source of short-term financing for an enterprise. In this case, the seller acts as a creditor, who provides the buyer with a deferred payment for the delivered goods. This source of short-term financing is usually the main one for small businesses, as they often have difficulty attracting traditional sources of debt financing.

Sellers tend to be the most loyal compared to other lenders. In this case, their motivation is to increase sales through a more lenient credit policy. It should also be noted that the downside is the acceptance of a higher risk of non-payment by the buyer.

Types of trade credit arrangements

Typically, a trade loan can be arranged in one of three types of arrangements.

1. Open account ( English Open Account);
2. Promissory note ( English Promissory Note);
3. Accepted trade bill ( English Trade Acceptance).

An open account is the most common type of trade credit agreement in which the buyer does not sign a formal promissory note. Upon shipment of the goods, the supplier issues an invoice indicating the quantity of the goods, its cost and the date on which payment must be made. On the seller’s balance sheet, this amount goes through the “Accounts Receivable” account, and on the buyer’s account, through the “Accounts Payable” account.

A promissory note is essentially a formal recognition of a debt obligation on the part of the buyer. In practice, a promissory note is most often issued when an open account is due for payment but the parties have agreed to extend the due date for payment. The features of this type of agreement are:

• longer payment period than an open account;
• this type of arrangement may involve the accrual of interest;
• the holder of the bill can transfer it to third parties, for example, sell it at a discount to the bank.

On the balance sheet of the seller, bills of exchange are accounted for in the “Bills Receivable” account, and for the buyer in the “Bills Payable” account.

An accepted trade bill is the legally most complex form of trade credit agreement. Before delivery of the goods, the seller issues a draft to the buyer ( English Draft), obliging the buyer to make payment on a specified date in the future. In this case, the seller will not deliver the goods until the buyer accepts the urgent draft ( English Time Draft). When accepting a time draft, the buyer indicates the bank at which the draft will be paid upon the payment date. From the moment the buyer accepts the draft, it becomes an accepted trade bill. The seller can wait for the payment date and present it for collection to the specified bank, or sell it at a discount to third parties.

Terms of payment

It should be noted that trade credit relations between the seller and the buyer arise only when goods are delivered on condition of deferred payment. These payment terms include:

1. Net period without discount. In this case, the seller does not provide a discount to the buyer for early payment. An example of such a condition could be “net 30”, that is, a trade credit is provided for a period of 30 days. Another example could be the condition “net 20, end of month”, that is, payment must be made before the 20th of the current month.
2. Net period with discount. This payment condition includes a grace period during which the buyer can take advantage of an early payment discount. For example, the condition “3/15, net 45” indicates that the buyer will receive a 3% discount if payment is made no later than the 15th day, and must pay the full amount if he makes payment between the 16th and 45th days.

Formula

If the seller does not provide a discount for early payment, then the use of trade credit during the net period is essentially free for the buyer.

If the seller provides a discount for early payment, the use of product credit will be free only during the validity period of the discount. If the buyer does not pay by the end of the deadline, he incurs an opportunity cost.

The effective annual interest rate of the opportunity cost of forgoing the discount can be estimated using the following formula:

r =	% discount	×	T	× 100%
	100 -% discount		Net credit period - Discount validity period

where T is the time base for calculating interest (360 or 365 days).

Calculation example

To better understand the mechanism of opportunity costs, let's look at it using a simple example. Let’s say that the seller delivered the goods on the terms “3/20, net 50” for the amount of $50,000. When paying on the 20th day, the buyer receives a discount of 3% or $1,500, that is, he will have to pay $48,500. If the buyer refuses from the discount, he essentially receives a credit from the seller in the amount of $48,500 for which he will have to pay $1,500 in 30 days.

Thus, the effective annual interest rate for using a trade loan will be:

r =	3	×	365	× 100% = 37.63%
	100 - 3		50 - 20

If the buyer can obtain financing at a lower effective annual interest rate, then he should take advantage of the early payment discount. Otherwise, it will be more profitable to pay after the net period.

Extending the payment period for accounts payable

As can be seen from the above formula, the cost of trade credit decreases as the difference between the net period and the discount period increases. Graphically this dependence can be expressed as follows*.

* the graph is built for the payment term “1/15, net X”, where X varies from 16 to 45

If paid on day 16, the effective annual interest rate will be maximum and will be 368.69%. If the net period is 30 days, then this rate will be equal to 24.58%, and for a net period of 45 days it will already be 12.29%.

Moreover, in the first 15 days (the discount period), the use of trade credit will be free, since the buyer does not have any opportunity costs.

Advantages and disadvantages

The main advantages of using trade credit are:

1. Easy to attract. The buyer does not need to negotiate additionally and sign an agreement, as would be the case with traditional lenders. Also, this type of arrangement does not involve providing the lender with any collateral or additional security.
2. Flexibility. This form of spontaneous financing most closely fulfills the matching principle. In other words, the buyer receives financing for exactly the duration and amount that he needs, which provides an advantage over most other sources of short-term financing.

It should also be noted that for some businesses this form of short-term financing remains the only alternative. This is especially true for small businesses or new companies that do not meet the requirements of traditional lenders.

However, when deciding to use trade credit, the following disadvantages should be taken into account.

1. High price. As a rule, the cost of this source of short-term financing is significantly higher than that of traditional sources such as, for example, a bank loan. This is due to a higher risk of non-payment and the absence of any collateral.
2. Decreased creditworthiness. As a result of the increase in the net lending period, the balance in the Accounts Payable account increases, which on the one hand leads to an increase in current liabilities and a decrease in liquidity indicators, and on the other hand to a decrease in turnover and solvency indicators. This can lead to problems obtaining financing from traditional lenders.

It should be remembered that a commodity loan, in principle, cannot be free and its cost, as a rule, is included in the price by the seller. In other words, the price of goods on payment terms without deferred payment will almost always be lower than when sold on credit. This is because the seller not only offsets its increased financing costs, but also assumes the risk of the buyer's default.

Thus, the use of trade credit must be based on a trade-off between liquidity and profitability.

COMMODITY CREDIT

COMMODITY CREDIT COMMODITY CREDIT is a special form of credit provided by sellers to buyers in the form of selling goods in installments, with deferred payment (sale on credit). In this case, the loan takes the form of a commodity, the payment for which is subsequently made and represents the repayment of the loan. Trade credit is provided against a promissory note (bill) or by opening a debt account. It helps speed up the sale of goods and increase the rate of capital turnover.

Economic dictionary. 2010 .

Economic dictionary. 2000 .

See what "COMMON CREDIT" is in other dictionaries:

Credit provided in the form of goods, machines, machinery and equipment. In English: Credit against goods See also: International loans Financial Dictionary Finam. Trade credit Credit provided in the form of supply of goods. Terminological... Financial Dictionary

Trade credit- the subject of a commodity credit agreement, as well as a loan agreement, can be things defined by generic characteristics. However, a trade loan differs from a loan of things in that the borrower has the right, in pursuance of the concluded agreement, to demand the transfer... ... Encyclopedic dictionary-reference book for enterprise managers

Trade credit- (English commodate) in the civil law of the Russian Federation, a loan provided (received) on the basis of an agreement providing for the obligation of one party to provide the other party with things defined by generic characteristics (agreement TK). According to Art. 822 Civil Code... Encyclopedia of Law

COMMODITY CREDIT- a loan provided in commodity form. In accordance with Art. 822 of the Civil Code of the Russian Federation, the parties may enter into an agreement providing for the obligation of one party to provide the other party with things defined by generic characteristics (Tk agreement). TO… … Legal encyclopedia

Legal dictionary

commodity credit- a special form of credit provided by sellers to buyers in the form of selling goods in installments, with deferred payment (sale on credit). In this case, the loan takes the form of a product, payment for which is subsequently made and represents... ... Dictionary of economic terms

Credit provided in commodity form. In accordance with Art. 822 of the Civil Code of the Russian Federation, the parties may enter into an agreement providing for the obligation of one party to provide the other party with things defined by generic characteristics (commodity agreement... ... Encyclopedic Dictionary of Economics and Law

Trade credit- see Commodity credit... Librarian's terminological dictionary on socio-economic topics

Trade credit- The parties may enter into an agreement providing for the obligation of one party to provide the other party with things defined by generic characteristics (commodity credit agreement). The rules of paragraph 2 Loan chapter apply to such an agreement... ... Vocabulary: accounting, taxes, business law

commodity credit- in the civil law of the Russian Federation, a type of loan agreement. According to Art. 822 of the Civil Code of the Russian Federation, the parties may enter into an agreement providing for the obligation of one party to provide the other party with things defined by generic characteristics (agreement T.K.) ... Large legal dictionary

Trade credit– this is a form of loan in which an agreement is drawn up stipulating the provision of certain products to the buyer in installments for long-term use. The agreement specifies the period and terms of the deferred payment.

The main advantage of this form of loan is that the customer has the right to use goods or services for which he is temporarily unable to pay. However, when purchasing products in installments, the consumer, as a rule, always overpays.

Distinctive features of trade credit from other types of lending

Commodity lending has some priorities.

First of all, this applies to the following client groups:

• enterprises whose activities are aimed at retail trade(this also includes transit);
• production associations, which are export-oriented.

The main purpose of a trade loan is to speed up the process of selling products and make a profit from it. Trade credit has a lower interest rate than bank credit.

But the size of this form of loan is limited by the amount of available funds that the entrepreneur has. Such limitations are compensated by bank loans.

Trade credit has some differences from other types of installments.

An agreement of this form of loan is concluded by legal entities and individuals, in contrast to a credit agreement, where the parties are a bank or a credit company that has a certain license to conduct banking operations.

Types of trade credit

There are several main types of this form of loan:

• With deferred payment- the most common form. In this case, the goods are delivered in accordance with the terms of the agreement. In this case, no other documents are required.
• On an open account– a form of credit that is used for long-term and repeated supply of a product in small quantities, that is, with constant cooperation between the company and the supplier. Debt repayment occurs according to the terms established by the contract. The cost of the product is transferred by the supplier to the debit of the account of the organization to which the product is supplied.
• In the form of consignment– a foreign economic commission transaction in which the seller orders the sale of goods shipped to the warehouse. All payments are made after the goods are sold. Financially, this type of lending is the safest.
• With debt registration by promissory note– This is a fairly promising form of credit. This type is especially relevant in countries where there is a high level of development of a market economy.

Bills of exchange may be issued after agreement of both parties with different execution periods:

• at the appointed time after presentation;
• upon presentation;
• at the appointed time after compilation;
• on the specified date.

When making certain types of deferred payment, the creditors are obliged to avoid non-financial forms of influence on the buyer: imposing a low-quality product, demands to terminate cooperation with the seller’s competitors, etc.

Commodity and commercial credit

Today, it is widespread to purchase products and services both on commodity terms and in accordance with requirements. commercial form of lending.

For the supplier, such operations are very effective, as they can significantly expand the product market, as well as enter into a long-term partnership with the consumer.

Commercial form of lending can be provided by both the supplier side and the buyer side of the product.

Suppliers– by installments and deferred payments, and buyers– by prepayment and advance payment. Thus, commercial lending is carried out by concluding a purchase and sale agreement by both parties.

Deferment of payments after drawing up an agreement on commercial and commodity lending may be carried out under the following circumstances:

• after purchasing the goods according to the sales contract with the possibility of deferment or installment plan;
• after purchasing goods on positions commodity credit.

The main difference between a commodity agreement and a commercial loan agreement is is significance of provisions, where the cost of the product and the period for its return must be specified.

The commercial loan agreement will be required to indicate the price of the product and the payment period. If such provisions are missing, the agreement will be invalid.

For the commodity form of lending, such conditions do not play a significant role.

The commodity form of loan agreement must indicate the name of the supplied product and its quantity.

Providing trade credit

Current legislation does not contain specific provisions for the issuance of deferred payment. Therefore, the parties to the loan agreement undertake to stipulate them independently when concluding the agreement.

Regarding the provisions of this agreement, each party performs two functions: the supplier is at the same time a creditor, and the buyer of the goods plays the role of a borrower.

During the provision of this form of loan A number of features should be taken into account:

• Regarding the terms of the purchase and sale agreement ownership of the product passes from the supplier to the buyer during its actual transfer.
• For the service of installments or deferred payment, the buyer pays a certain percentage specified in advance in the agreement. This percentage is not included in the total cost of production.
• There is a deferred payment for products. This will allow you to make payments in installments after receiving a profit for the goods sold.

Trade loan agreement form

A trade loan agreement has virtually no differences from a standard loan agreement. The only difference will be the subject of the agreement.

Thus, a trade credit agreement must contain:

• Name products;
• quantity purchased on credit for goods;
• birth characteristics products.

If necessary, information about assortment and quality may be included here.

Internal organizational and administrative documents

In an unstable economy, there may always be a risk of non-payment, which may be associated either with the bankruptcy of the company or with the dishonesty of the buyer.

To protect yourself from such an outcome, creditors should develop the following internal organizational and administrative documents:

• application for issuance commodity credit;
• instructions on how to submit this form a loan indicating a number of documents provided by the borrower for the loan;
• deferred payment agreement wholesale companies;
• provision for the provision of such a form loans to retail customers;
• list of organizations, who have a dubious lending reputation.

Terms of trade credit

There are some mandatory conditions in the process of commodity lending:

• period definition, for which payment will be deferred;
• indication of moment, during which the transfer of property occurs (the date of conclusion of the agreement or the moment of transfer of products);
• determining the amount of payments for using this form of loan - interest, as well as indicating the conditions for their payment.

Trade credit amount

The contract price includes any sums of money, the total cost of tangible and intangible assets, the transfer of which to the taxpayer is carried out by the buyer of the goods himself, or through a third party, taking into account compensation for the cost of the product.

Trade credit term

Determining the terms of the commodity form lending can be fundamentally different:

• Deferred payment period may be dictated by market conditions.
• The company may have “historical developments” terms of provision of this form of loan.
• If the company does not have strict requirements When issuing a loan, several approaches must be taken into account:

1. based on comparison with actual maturity period of the loan debt;
2. based on comparison of contribution margin with the amount of borrowed funds.

Calculation of trade credit

Precisely determining the term of this form of loan will help protect the company from possible risk.

• actual receivables turnover period

Of = V / DZ, Where:

1. Of- actual turnover of the organization’s receivables;
2. IN- gross income for a certain period;
3. DZ- indicator of the average size of accounts receivable;

• receivables payment period:

Pdz = T/Of, Where:

1. Pdz- repayment period for receivables;
2. T- duration of the term;

• turnover period, which is necessary for the planned increase in income:

Op = V / Pdz, Where:

1. Op– turnover for the required increase;

• turnover period, which is necessary to obtain the required revenue:

Sp = T / Op, Where:

1. Sp- turnover period of income growth;
2. T- duration of the term;

• optimal turnover period, which is considered important for achieving the required income:

Sdz = Pdz – Sp.

The optimal period for concluding a deferred payment can be calculate using the formula: the average turnover ratio of accounts receivable should not exceed the average period of turnover of accounts payable.

Otherwise, the company will face the problem of a shortage of working capital.

History of trade credit

The commodity form of a loan is the historical predecessor of the monetary form of lending.

Return of trade credit

Return of trade credit and is carried out on the same principle as the return of a cash loan.

When returning a trade credit transfer of ownership of the product takes place.

In case of receiving a trade loan, and then returning it, the buyer undertakes to pay VAT on the cost of the transferred products.

Product credit VAT

In the event that the parties enter into a purchase and sale agreement based on the provisions of commodity lending, which involves deferring payments for a specified period and interest, then the tax base for similar products VAT for the supplier of these goods or services is calculated based on the contract price of these products, increased by such percentage as determined by the contract.