Advantages of Buyer and Supplier Credit

Buyers as well as Suppliers credit are often used by business enterprises while conducting transactions. Many students who are undertaking a finance course often get tangled between the two terms. Many students who are asked to write an assessment often ask can someone write my assessment for me? Today we will try and clarify the difference and the advantages of Buyer and Supplier credit.

What is buyer’s credit?

Buyer’s credit is a facility which is extended by either a bank or a financial institution in the form of loan to finance the requirements of the importers in terms of purchasing the capital goods and services. Buyer’s credit is an important manner of financing in foreign trade because the buyers rarely intend to pay cash for their bulk transactions or purchases whereas all the exporters does not have the capacity to extend long term credits of substantial amounts to their buyers. The facility of buyer’s credit usually involves multiple parties. One of them is the bank that extends the loan to the importer and the other is the finance agency based in the exporter’s country who guarantees the loan. In view of the fact that the buyer’s credit engages multiple parties and involves legal procedures between two countries, therefore, it is available only for those export orders which involves substantial amount of transaction usually, a few million dollars.

Buyer’s credit provides advantages to both the exporter and the importer in an international trade transaction. The seller or the exporter receives the payment without any delays and that too as per the terms of the contract. The exporter is also benefited by the buyer’s credit as he is able to undertake the export orders of substantial amounts without worrying about the payment. The importer obtains the facility to make the payment of the purchases over a period of time rather than paying a lump sum at a time and the importer can also opt for funding in a currency which is more stable in nature.

What is supplier’s credit?

The credit which is provided by a seller to a buyer or purchaser of goods or services is called supplier’s credit. This form of financing is not only available for import/export but for all types of business settings. It is a type of finance in which the buyer purchases the goods at the time when they require but pays for them later in accordance with the terms and conditions as settled with the seller.

In most of the cases, the supplier’s credit is framed in such a way which requires the importer to pay a certain percentage of the contract price at the time of entering into the contract and further accept the promissory notes to make the payment of the remaining amount on a specified future date. Alternatively, the importer can also issue some post-dated drafts to assure the payment of the outstanding balance. The post-dated draft is usually of the time when the importer thinks that they would have enough cash after selling the goods imported at a profit.

Just like any other financing options, supplier’s credit is also provided with the provision of finance charge which is charged on the balance outstanding amount which the importer pays later. The rate of interest is usually determined on the basis of the regulations of the government which provides an assurance to the importers or the customers that they are not charged with an excessive interest arte in return of the credit supplied by the exporter. The rate of interest which the government determines is generally competitive with the interest rate of any other financing option.

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