4.Why is acceleration or delay of payments more useful to an IC than to smaller, separate companies?
i was able to answer all but this question. i have read the material required but i don't quite get what they are asking?
never mind i think i found it....
If an importer expects the currency in its country
to depreciate in terms of the currency of its foreign supplier, it probably will be motivated to
buy the necessary foreign currency as soon as it can. This assumes the importer must pay in
the currency of the exporter, the opposite of our assumption in the hedging discussions.
Because an IC has more flexibility to hold out for longer periods of time to finalize the transaction. The IC can negotiate forward hedge contracts with its bank for any currency, because the company and the bank are not limited to the 1-, 3-, and 6-month periods instead, they can agree on any time period, whereas, smaller companies cannot afford to wait this long.
this helped me understand thanks
To understand why acceleration or delay of payments is more useful to an IC (Independent Contractor) than to smaller, separate companies, let's break down the question and explore the key concepts involved.
First, it's important to clarify what is meant by "acceleration or delay of payments." This refers to the ability to speed up or delay the timing of receiving or making payments. In other words, it involves manipulating the timing of cash flows.
Now, let's address the main question: Why is this more useful to an IC than to smaller, separate companies?
1. Flexibility in managing cash flow: Independent Contractors often operate on a project-to-project basis. They may have variable income streams, making cash flow management crucial. By having the ability to accelerate or delay payments, ICs have more control over when they receive or pay money. This flexibility helps them manage their finances effectively and ensures they have enough funds to cover expenses and invest in their business.
2. Minimizing financial strain: ICs typically have fewer financial resources and may not have access to the same credit lines or financial support as larger companies. Accelerating payment can provide immediate cash flow benefits, helping ICs avoid cash flow gaps or financial strain. On the other hand, delaying payment can provide them with more time to free up cash or seek additional sources of revenue.
3. Relationship management: Unlike larger companies, ICs often have closer relationships with their clients or customers. Accelerating or delaying payments can help maintain positive relationships. For example, accelerating payment may provide an incentive for clients to continue working with the IC, while delaying payment may allow the IC to negotiate better terms or manage other financial obligations.
4. Income smoothing: ICs usually encounter irregular income patterns due to the nature of their work. Accelerating or delaying payments can help smooth out these income fluctuations. By carefully managing the timing of payments and receipts, ICs can align their cash inflows and outflows with their business needs, ensuring a more stable and predictable income flow.
In summary, acceleration or delay of payments is more useful to an IC than to smaller, separate companies because it allows them to flexibly manage cash flow, minimize financial strain, nurture client relationships, and achieve income smoothing.