Source or Type of Short term finance: Trade Credits From Accounts Payable

Features & Salient Points

• Credit extended by the supplier of goods and/ services;

• Normally for a period of 30 to 90 days;

• Credit term given by suppliers will depend on the company’s financial position and whether discount is taken or not

Advantages

Interest free unless if supplier offers discount and borrower did not pay to enjoy the discount benefit;

Disadvantages

   Therefore, the “cheapest”  source of finance but should be handled properly otherwise company’s reputation might be ruined if it overstretch the credit term given by the suppliers.

Go to All Articles on Sources or Types Of Short Term Finances