Trade credit is the credit extended to you by suppliers who let you buy now and pay later. must be agreed with a supplier and forms a credit agreement. TRADE FINANCE AND SMES | 11 Trade requires credit or payment guarantees Only a small part of international trade is paid cash in advance, as importers generally wish to pay, at the earliest, upon receipt of the merchandise in order to verify its physical integrity on arrival. If you use internal sources of finance for the purchase, you pay the expense and that completes the transaction. Answer: Trade Credit: Trade credit is the credit extended by the trader to another to purchase goods and services. The internal source of finance is broadly covered under the above heads. Internal Finance in Practice. Merits of Trade Credit. It’s a substitute for more expensive and more-difficult-to-obtain forms of credit, such as bank loans, academic studies show . with them. Exporters, however, wish to … Trade credit refers to the credit extended by the suppliers of goods in the normal course of business. Just as a firm grants credit to its customers it can also get credit from the manufacturers or wholesalers or suppliers. It is known as trade or mercantile credit. Trade credit can also be an essential way for businesses to finance short-term growth. The sources of internal finance mentioned above can be used in conjunction with one another or individually. Now we shall briefly discuss the various sources of short-term finance. SOURCES OF FINANCE 2.1 SHORT & MEDIUM TERM FINANCE Trade Credit ... Internal Rate of Return of a Project is that cost of capital which makes the net present value of a project equal to zero. With external sources, at a 4% interest rate over 6 years, you’d pay almost $10,000 in interest that wouldn’t be required with internal sources. The specific source of internal financing used by a financial manager depends on the industry the firm operates in, the goals of the firm and the restrictions (financial or physical) that are placed on the firm. Internal sources of finance refer to generating finance for the company internally from sources like revenue generated from sales, collection of debtors or loan advanced, retained profits to cover the operating expenses of company or cash required for investment, growth and further business. According to Howard and Upton, trade credit may be defined as Trade credit. Then you can repay the cost monthly, if needed, from other budget lines. Because trade credit is a form of credit with no interest, it can often be used to encourage sales. It facilitates the purchase of supplies without immediate payment. This source of finance allows a business to obtain raw materials and stock but pay for them at a later date. It is a convenient and continuous source of finance. 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