TRADE CREDIT

WHAT IS A TRADE CREDIT• A trade credit is an agreement where a customer can

purchase goods on account (without paying cash), paying the suppliers at a later date. Usually when the goods delivered, a trade credit given for a specific number of days -30, 60 or 90. jewelry businesses sometimes extend credit to 180 days or longer.

• Trade credit is essentially a credit a company gives to another for purchases of goods & services

MEANING OF TRADE CREDIT• Trade credit is an important external source of

working capital financing. It is a short term credit extended by suppliers of goods & services in the normal course of business, to a buyer in order to enhance sales. • Trade credit arises when a supplier of goods &

services allows customers to pay for goods and services at a later date. Cash is not immediately paid & deferral of payment represents a source of finance.

ADVANTAGES OF TRADE CREDIT

• It is easy and automatic sources of short term finance.• It reduces the capital requirement.• It helps the business focus on core activities.• It does not require any negotiation or formal agreement