Question

How does trade credit leads to risk of overtrading

Answer 1

Trade credit refers to the advancing of credit by one trader to another for purchasing goods and services. It eliminates the need for immediate payment on account of purchase of goods and services. through trade credit a trader allows the supply of required goods and services to another trader without immediate receipt of payments. Those traders who have a certain acceptable level of goodwill and financial standing can obtain easy trade credit. The amount and the time for which a trader can obtain trade credit depends on his market reputation, financial standing,credit worthiness, etc. Since it is easily available, thus it leads to overtrading.