Question

In the Concepts in Action video you watched this week, the speaker mentioned that for a small business, having payment terms is like using "free money" for a while. What do you think this means? And in your personal financial life, can you think of a situation where you also have access to using free money for a little while every month?

Answer 1

answer-

The free money for small business refers to the payment which is not paid by the small business owner for a specific period of time. meanwhile, the small business can invest that money to some other business purposes like working capital to run daily business operations.

let's understand with an example-

A small manufacturing company purchases raw materials from their suppliers but did not pay means it purchases the raw materials on credit then that is called free money that company has money worth of supplies for free for a specific period of time.

In my personal life, i can take examples like when i borrow money from my friend to purchase anything and then return back next month or specified period of time. another situation, where i go to my friend's consumer stores and purchase products but pay some amount and remaining amount is held back in his register means credit. so , i our daily life we do use free money in terms of credit, borrowings etc.