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Credit terms define repayment conditions in financial transactions, encompassing payment timelines, cash discounts, credit credentials, sales terms, and liability procedures.
Credit terms refer to the specific repayment conditions dictating how long customers have to pay bills and the amount of cash discount allowed. These terms are crucial in defining the financial relationship between a seller and a buyer. They include details such as the timeframe for repayment and any discounts offered for early payment.
For example, in the financial capital market, before a bank lends money, it may conduct a credit check on the borrower, require information on income sources, and possibly ask for collateral or a cosigner. These measures help the lender assess the creditworthiness and reduce the risk associated with the loan.
Establishing credit credentials, setting sales terms, and managing liability procedures are integral parts of ensuring smooth financial transactions and minimizing risks when extending credit to customers.
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