Trade Credit

Answer: Trade credit is the credit allowed by suppliers to the company for the purchase of goods and services, without immediate payment.

The supplier allows the buyer to pay after a certain period (e.g. 30, 60 or 90 days). It is an important source of short term (working capital) finance. It is shown as sundry creditors or bills payable in the books. It is easily available, involves no formal procedure and generally carries no explicit interest, but its amount depends on the creditworthiness and reputation of the company, and the buyer may lose cash discount.