METHODS OF FINANCE - Trade credit (SHORT TERM)

Trade credit - This means paying suppliers a period of time after the goods or services have been received. Type of supplies bought on trade credit is normally things such as stock and raw materials.

It gives the business time to use the supplies to produce and sell the output before paying the invoices.

 

IT HELPS WITH CASH FLOW PROBLEMS

 

In effect the supplier is providing the business with finance for the period of the trade credit e.g. 30 days.

 

The business may lose out on discounts offered for the immediate or quick payment increasing costs.

 

 

BUT.......

 

 

In the long term this method of finance is not suitable for long term or large purchases.

 

New businesses may be required to pay in advance until credit terms are agreed.