Q.What is meant by Trade Credit?

Trade credit is the short-term source of finance most students first meet in this AP BIEAP Commerce chapter, because almost every business uses it.

Trade credit refers to the credit a supplier extends to a business buying goods or raw material, permitting payment after an agreed interval, commonly thirty, sixty or ninety days, instead of requiring immediate cash payment. It is, in effect, a short-term, low-cost loan of goods.

The amount of trade credit a firm can get depends on its reputation, its record of past payments, the volume of business it does with the supplier, and general practice in that line of trade. Trade credit is widely used because it needs no formal agreement or security, and it expands automatically as the …