Question

Describe the advantages of Trade Credit as a source of short-term finance.

Answer 1

1. Trade credit is a convenient source of funds as no formalities are involved.
2. It is a continuous source of finance. It is readily available to credit worthy firms.
3. Trade credit can be used to finance higher inventory level to meet the expected rise in sales.
4. It is a flexible source of funds as no charge is created on the assets of the firm.
5. Trade credit helps to promote the sales of the seller.