- Every business requires trade credit and is common to all business types.
- Credit sales or granting of credit is inevitable in the present competitive business world.
- It is short-term financing to businesses.
- The small retailers, to a large extent, rely on obtaining trade credit from their suppliers.
- The cheapest method of financing; it is an easy kind of credit that can be obtained without signing any debt instrument.
- This is not a cash loan. It results from a sale of goods services which have to be paid sometime after the sale takes place.
- It is given by one trader to another trader to delay payment for goods and services involved in the transaction.
- Suppliers sell goods and willingly allow 30 days or more credit period for the bill to be paid.
- They offer discounts if bills are cleared within a short period such as 10 or 15 days.
- Such credit is given/granted to those having reasonable standing and goodwill.
Advantages of Trade Credit:
- Trade Credit is the cheapest and easiest method for raising short-term finance.
- It can be obtained without making any formal and written agreement or signing the same.
- It is readily available whenever goods and services are purchased on credit in bulk.
- It is free of cost source of financing.
- The terms of trade are lenient and not rigid.
