Trade Credit:

Trade liability owed to supplies which is short term financing for business firms & great source of short term financing for business. In business cash play a very vital role without the optimal use of cash operations cannot perform easily. When business entity deals with credit (which should be available with the help of lender/creditor) to meet their raw material deficiency, it is spontaneous financing because first manufacturer purchase raw material on credit and after the sale of finish good they return their outstanding balance. there are three types of trade credit

1.      Notes payable:

It is most secure form of payable in the context of supplier because buyer sign a note which is prove debt note, should be claim in case of credit stretching.

2.      Account payable/open account payable:

In this type of liability buyer does not sign note/evidence. It is less secure liability then notes payable. In case of company liquidity preference given to note payable after notes payables. Because of this reason in liquidity base balance sheet accounts payable record after notes payable

3.      Trade acceptance:

When seller draws a draft on buyer,ordering the buyer to pay their obligation in future. The seller does not release the goods until the buyer accept the draft. This draft can be discounted from mentioned bank if it has marketable value which is due to credibility of buyer.