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Recession redefines trade credit practices
02
Mar '09
The pestilence of recession is causing dismal prospects in the industry credit, making it critical. Trade Credit (TC) is slowing down; unnoticed by many, redefining credit flows across various sectors, firms, influencing the pattern of income distribution, and ultimately the economic growth of the country.

TC is a vital component of working capital management for any firm. It manipulates the entire business chain, starting from the raw material suppliers, manufacturers, dealers to the wholesaler and the retailer. Credit sales today, have a higher proportion of risk due to bad debts, uncertainty, delays, and added realization costs. Chances exist, that it might even spoil business relations.

Therefore, the 'need of the hour' for every business is to adopt a precautionary approach while giving credits. The feeling of insecurity among businesses regarding the provision of TC led them to opt for cash based transactions.

Small firms that are newly started or weak financially, seldom get TC essential for their survival or growth. Simultaneously, tightening of TC affects the working capital management of the firms, thereby jeopardizing the bank credits.

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Fibre2fashion News Desk - India

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