Rahul Fashion, a reputed garment manufacturing unit needs to fund its day-to-day expenses, like wages, rent and maintaining a stock of raw material. The owner approached his raw material supplier to give them credit for two months so that he can get cloth for making garments without making immediate payment. The supplier made an enquiry regarding Rahul and found that his reputation of giving payment is not very good. In the past, lenders were not very happy.

What is the source of finance Rahul is trying to get?

Factoring

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Trade Credit

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Equity Shares

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None of the above

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Solution

The correct option is B
Trade Credit

Trade Credit. It is the credit extended by one trader to another for the purchase of goods and services. Trade Credit is a convenient and continuous source of fund. The volume and period of credit depend on the reputation of the purchasing firm, the position of the seller and volume of purchase.

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