In the context of small businesses, what is trade credit?
What will be an ideal response?
Trade credit refers to purchases of inventory, equipment, and/or supplies on an open account in accordance with customary terms for retail and wholesale trade. In general, trade credit is one of the most important sources of debt financing for a small business because it arises spontaneously in the normal course of operating the business. Firms seeking new and expanded wholesale and retail markets for goods have the option of using consignment selling. Small auto, major appliance, and farm equipment dealers consider consignments a form of trade credit because payments to suppliers are made only when the products are sold rather than when they are received in stock.
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