What Are The Advantages And Disadvantages Of Trade Credit ?


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Advantages of Trade credit
· Reduced capital requirements, this means that if a new business setting up has trade credit, they will obviously require less money in capital to start up the business. This is a major advantage to someone who has very little money but has a good idea about starting a new business.
· Trade credit with improve the cash flows and therefore provide smoother operation for the business
· Businesses can buy now and pay later which means even if they don't have the money at first they can purchase items, sell them as a business and then make the payments at the end of the month when the products have been sold and a profit has been made.
· Businesses can look to grow without having to worry of needing to make immediate payments which may set them back.
· With trade credit, the business can focus on other areas such as sales, marketing and research rather than worrying about meeting targets just to have enough money to pay the bills.

Disadvantages of Trade credit
· If repayments are not made by certain deadlines, the business will receive a poor credit history which will be a big blow to any business as they will not trusted in the future if they require any loans, trade credit, credit cards or leasing.
· Only companies with a good credit history will get trade credit and these can often be hard to build up, especially for new businesses.

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