:AACE CERTIFICATION 2009-2010:

Dears,
I would like to say happy New Year 2010 and all the best for all of you. Today, I would like to continue my curious on payment. Now is about trade credit, factoring invoices and observed from syariah.
What is trade credit? Definition from the link I got is an arrangement to buy goods or services on account, that is, without making immediate cash payment (1).
For many businesses, trade credit is an essential tool for financing growth. Trade credit is the credit extended to you by suppliers who let you buy now and pay later. Any time you take delivery of materials, equipment or other valuables without paying cash on the spot, you're using trade credit (1)
When you're first starting your business, however, suppliers most likely aren't going to offer you trade credit. They're going to want to make every order c.o.d. (cash or check on delivery) or paid by credit card in advance until you've established that you can pay your bills on time. (1)
Suppliers don’t like offering trade credit, most have accepted it as an industry standard and have learned how to operate and live with it. In fact, some suppliers have even mastered how to offer trade credit and use it to better position their companies with leading clients (2)
Large creditworthy customers (considered sufficiently sound financially to be granted credit http://www.yourdictionary.com/creditworthy ), such as the government or large companies, will usually demand trade credit as part of their contract negotiations. Some examples of entities that ask for 30 to 60 day payment terms are: Fortune 500 companies, Large and medium sized companies, State government agencies, Federal government agencies (2)
If we try do some simulation on simple trade credit, depending on the terms available from your suppliers, the cost of trade credit can be quite high. For example, assume you make a purchase from a supplier who decides to extend credit to you. The terms the supplier offers you are two-percent cash discount with 10 days and a net date of 30 days. Essentially, the supplier is saying that if you pay within 10 days, the purchase price will be discounted by two percent. On the other hand, by forfeiting the two-percent discount, you're able to use your money for 20 more days. On an annualized basis, this is actually costing you 36 percent of the total cost of the items you are purchasing from this supplier! (360 (20 days = 18 times per year without discount; 18 (2 percent discount = 36 percent discount missed.) (1)
For the supplier, is can be quit risky for the company cash if trade credit is misused. In the other side, it can be a good positioning in business to win the contract if can offer trade credit to valuable clients (2).

From above we I analyze that applying trade credit will have has significant impact into cash flow either supplier (especially new/small supplier) or client and also positioning in business. For small supplier it required extra effort, and mostly see disadvantage for them. As I mention in the previous blog I ever had experience withdrawal of small (but) good -competitive supplier which disagree with the requirement of trade credit requested by client/my company. This is, IMPO, potentially eliminate competitiveness among supplier since only who can provide trade credit can involve and win the tender.
I would say that it can do better if all the services/goods delivery can be done without demanding a trade credit, also in addition to syariah perspective. Because by the fact above trade credit is not expected by supplier (especially new/or small players). The trade credit demand mostly push by clients which is has a thought probably (IMPO) they take an advantages by delaying payment (by as kind trade credit from his supplies).
But the supplier is not fool, since the will transfer those risk to the client by number of interest. Some suppliers have even mastered how to offer trade credit and use it to better position their companies with leading clients (2).
Back to our focus, to suppliers who provide services, project management, construction etc; the PM EV could potentially provide almost “real-time” project measurement, which provides you earn measurement which eligible for payment immediately. If we apply this on the work, immediate measure the work, then immediate pay the claim as per measured, then the trade credit will not popular anymore. (Remember Walmart story in the class, pay the good in the same day).
Also in term of Syariah it will comply with what has been told” pay the work immediate before the sweat is getting dry” (story from Baihaqi) (3).
In the clients perspective, it potentially reduce project capital by paying the work immediate and taking advantages of forfeiting discount.
B/R,Farid,Jakarta
Citation lists:
(1) http://www.entrepreneur.com/encyclopedia/term/82538.html
(2) http://EzineArticles.com/?expert=Marco_Terry
(3) http://www.rahima.or.id/index.php?option=com_content&view=article&id=421%3Aal-arham-edisi-14-a-hak-hak-pekerja-rumah-tangga-dalam-islam&catid=19%3Aal-arham&Itemid=151&lang=en