The four benefits of using trade credit are:
- Low cost finance: Trade credit have low or no interest rate
till the due date unlike the loan form bank, therefore it is a
cheapest form of financing. Therefore, that amount can be utilised
for day-to-day operations of the firm.
- Discounts on early payment: Trade credit generally offers
discount on early payment like 3/10 net 20. Thus, discount is
offered if you make payment by the 10th day.
- No legal banking formalities: Applying for a loan from bank
needs many formalities to be fulfilled, which is not in a case
related to trade credit. Thus, trade credit is a hassle free source
of financing with no or low indulgence of formalities.
- Improved sales: Trade credit for a supplier is a part of
promotion, thus it improves sales as many customers will seek a
relaxation in making a payment.