Trade Credit Meaning – Free Articles on Scholarszilla
Trade Credit Meaning
What is Trade Credit?
No business can be run without ‘credit’. Credit is the soul of business. Trade credit financing is major source of short term financing. Manufacturers, wholesalers and suppliers of goods or materials are called ‘trade creditors’.
They sell tangible goods to other business concerns on the basis of deferred payment i.e. future payment credit is extended b these business concerns with an intention to increase their sales.
Trade credit is not cash loan. It results from a credit sale of goods/services, which has to be paid at a future date after the sale takes place. In other words, when goods are delivered by supplier to a customer and the payment is made after some time, it is called as trade credit.
The small retailers, to large extent, rely on obtaining trade credit from supplier. It is an easy kind of credit which can be obtained without signing any debt instrument. It is readily available and is cheap method of financing. Suppliers sell goods and willingly allow 30 days or more, for bill to be paid. They even offer discounts, if bills are cleared within a short period such as 10 days or 15 days, etc. The terms of trade credit are not rigid.
