Trade credit refers to credit obtained from the suppliers of goods in the normal course of trade. In other words, it means the goods purchased from suppliers on credit. The duration of trade credit is, usually, 15 days to 90 days. It is granted without any security except the credit standing of the concern. The amount of trade credit that can be enjoyed by concern depends upon its creditstanding and the volume of business it carries on the supplier of goods.
There are three types of trade credit. They are:
Open accounts or accounts payable or Bills payable
Notes payable
Trade acceptances.
Bank credit refers to credit, financial accommodation or advance taken from commercial banks. Bank credit is, generally, given for a ** not exceeding one year. Bank credit is common to all types of business. The amount of bank credit depends upon the nature and size of the business, and the credit-standing of the concern. Bank credit may be unsecured or against guarantee or against hypothecation, pledge or mortgage of assets. An interest of 15% to 18% is, usually, charged on bank credit.
Bank credit takes various forms. They are:
Short-term loan
Overdraft
Cash Credit.
Discounting of bills of exchange
Commercial letter of credit.
