Advertisements
Advertisements
Question
Justify the following statement.
Trade credit is the soul of business.
Advertisements
Solution
No business can run without 'credit'. Credit is the soul of business. Trade credit financing is the 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 by these business concerns with the intention to increase their sales. The business firm extends credit also because of the custom that has been built up over time.
Trade credit is not a cash loan. It results from a credit sale of goods/services, which has to be paid at a future date after the sales take place. In other words, when goods are delivered by a supplier to a customer and the payment is made after some time, it is known as trade credit.
