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Tata Capital > Blog > Loan for Business > What Is Trade Credit and How Can It Help Your Business?

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What Is Trade Credit and How Can It Help Your Business?

What Is Trade Credit and How Can It Help Your Business?

Running a business requires substantial capital and then some more. After all, adequate cash flow is indispensable for keeping your operations lean and scaling your business to new heights.

Are you too looking for a funding option? If so, we've got you! Whether you are a startup or an established company, you can benefit immensely from trade credit.

What is trade credit?

Trade Credit is a type of business-to-business agreement where one business provides a line of credit to another. Here, the business using the credit is known as the customer and can pay for the goods purchased later at 0% interest. Moreover, as a business, you can either use trade credit facilities provided by other companies or offer trade credit to them.

Here is why you should say yes to a trade credit agreement.

1. Mutually beneficial

Trade credit helps the business as well as the customer. If you're a trade credit provider, you can attract more customers by not demanding upfront payments. Similarly, if you use trade credit facilities for your business, you can make purchases without worrying about making immediate large payments. In both cases, opportunities for doing business increase favourably.

2. Ensure smoother operations

If you're unable to secure a business loan for your startup or small business, you can raise funds with the help of trade credit. It can keep your business shelves stocked without requiring you to pay cash upfront. This way, you'll be able to increase your cash flow, thereby sustaining your company.

Additional Read: Choosing the right working capital solution

3. Improved business relations

By providing trade credit to other businesses, you can show that you trust them enough to extend credit facilities. As a result of this confidence, the buyers are encouraged to continue making purchases from you. These improved business relations ensure that you have a loyal customer base, so your operations never suffer.

4. Early payment discounts

Trade credit for business often comes with the advantage of early payment discounts. This is a great incentive for your buyers to make payments before the set deadline and for you to strengthen relations. If you are a buyer yourself, you can increase your savings by making early payments and making the most of these discounts. Doing so will also help in improving your business’s profit margin.

5. Competitive edge

Trade credit offers you a competitive edge over businesses that demand payment upfront. Buyers generally prefer the chance to buy something and pay for it later, particularly when they need an item that they cannot afford to pay for upfront. In such cases, they are more likely to purchase from you than your competitors.

Additional Read: Five Ways to Grow Your Business

Parting thoughts

It is necessary to take advantage of the best funding options when you run a business. At Tata Capital, you can secure funding for your business and make any necessary payments or purchases quickly.

With our easy business loan eligibility, you can avail of a loan for up to Rs. 75 Lakhs to meet any business requirement. You can also use our EMI calculator to estimate your potential EMIs beforehand, so you're always in control of your finances.

Check out our business loan interest rate and other offerings here.

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