Question

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

Give two 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 a higher inventory level to meet the expected rise in sales.
4. It is a flexible source of funds because it does not impose any charge on the firm’s assets.
5. Trade credit helps promote the seller’s sales.