Trade credit refers to the credit provided by one firm to another for the purchase of goods and services. It is a source of short-term finance and facilitates purchase of goods and services without immediate payment.
- It promotes the sales of an organisation.
- It is a continuous and convenient source of funds.
- It does not create any charge on the assets of the business.
- This source is very easily available when the credit worthiness of the customers is known to the sellers.
1.Through this source only limited amount of funds can be raised.
- This source is generally costly as compared to other
- A loss of cash discount is also noticed.
- A firm may indulge in overtrading due to easy availability and flexibility of this source. This adds risks to the firms.