Firms pay a low interest rate on spontaneous liabilities so these funds are its cheapest source of capital.Consequently, the firm should make arrangements with its suppliers to use as much of this credit as possible.

Question

Quizplus · Accepted Answer

Spontaneous liabilities, such as trade credit from suppliers, can sometimes carry implicit costs, such as foregone discounts for early payment, making them not necessarily the cheapest source of capital. Additionally, over-reliance on such liabilities can strain supplier relationships and potentially impact credit terms negatively.

Firms Pay a Low Interest Rate on Spontaneous Liabilities So