Q8. Rajiv fashion, a reputed garment manufacturing unit needs to find its day to day
expenses like wages, rent, maintaining stock of raw materials, etc. The owner
approach his raw material applier to give them credit for two months, so that he
can get cloth for making garments without making immediate payment. The
supplier made an enquiry regarding Rajiv and found that his reputation of giving
payments is not very good. In the past the lenders were not very happy.
(a)What source of finance Rajiv is trying to get in above case.
(b) Should the raw material supplier grant credit to Rajiv fashion house? Explain
Answers
Answer:
a) Short term loan.
b) The credit payment condition of Rajiv Fashion House is not so good. So, the supplier may not find it profitable and would not be interested in lending the owner money. But it depends on his will, he may give him credit seeing the goodwill of the Rajiv Fashion House.
(a) Trade credit.
Rajiv is trying to get trade credit for his business. Trade credit is a type of credit given by the trader to the buyer when purchasing goods and services. Trade credit is allowed so that if the buyer is unable to make the payment for the goods or services he bought right that moment, he is given a credit period to make payment and he can take the goods with him.
(b) No, they shouldn't.
The raw material supplier should not allow grant trade credit to Rajiv because his reputation at giving payments is not very good. If the raw material supplier gives him credit despite knowing his reputation, he will be at risk of loss.