Precise Machines has made use of a payment method where the company accesses both credit and cash payments at different amounts. This paper is an annotated bibliography of the methods that the company is using, against a renowned set of accounting principles used to determine the sustainability of the company growth.
Ng, C. K., Smith, J. K., & Smith, R. L. (1999). Evidence on the determinants of credit terms used in interfirm trade. The Journal of Finance , 54 (3), 1109-1129 .
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This paper discusses the determinants of credit terms to companies offering services. According to this paper, the age of an enterprise is extremely important in determining the possibility of credit terms to sellers. For relatively younger enterprises, the credit offer is more likely to become a full offer as the company tries to find solid ground for operations. Moreover, the reputation of the company which grows with age can affect the credit terms that a company offers. This is indeed true for the Precise Machines Company as it is a relatively young and unknown company with regards to engine manufacturing and assembly. The company is yet to establish a firm market presence, with limited financial information available on the company. As such, the majority of payments (70%) are offered on credit, as opposed to other market players who may offer lower credit terms.
Michalski, G. (2007). Portfolio management approach in trade credit decision making. Romanian Journal of Economic Forecasting , 3 , 42-53.
This paper discusses the management of decision making with regards to trading in credit. This paper discusses the interplay between credit trade and company growth. Over a period of time, a company will use current liabilities within the company to engage growth while building on credit trading. As a result, Precise Machines has been able to grow through giving out affordable credit transactions and therefore providing adequate company growth over it 40 years of existence.
References
Michalski, G. (2007). Portfolio management approach in trade credit decision making. Romanian Journal of Economic Forecasting, 3 , 42-53.
Ng, C. K., Smith, J. K., & Smith, R. L. (1999). Evidence on the determinants of credit terms used in interfirm trade. The Journal of Finance, 54(3) , 1109-1129.
