Free trade credit/cash conversion cycle
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1. What is the difference between free trade credit and costly trade credits?
2. What are some actions a firm can take to shorten its cash conversion cycle?
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Solution Summary
The solution explains the difference between free trade credit and costly trade credits and what are some actions a firm can take to shorten its cash conversion cycle.
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1. In a free trade credit there is no cash discount offered and so there is no loss if the cash discount is not taken as there is no cash discount and so essentially the total credit period is the free credit period.
A free trade credit becomes costly trade credit with the addition of a cash discount. A company which does not take cash discount is paying more and so there is a cost attached ...
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