# Costs of Availing Trade Credit
Trade credit is often described as 'free' finance — but it actually carries several hidden costs.
## (i) Price (Loss of Cash Discount)
Suppliers usually offer a cash discount for immediate payment. By choosing to take credit, the buyer foregoes that discount. The foregone discount, when annualised, can translate into a very high implicit cost of credit.
## (ii) Loss of Goodwill
If the buyer oversteps the credit period, suppliers may discriminate against the delinquent customer when supplies become tight. The actual impact depends on the relative bargaining power of buyer and supplier.
## (iii) Cost of Managing
Management of creditors involves administrative and accounting costs — recording invoices, tracking due dates, processing payments — that would otherwise not be incurred.
## (iv) Conditions Imposed
Many suppliers insist on certain conditions to extend credit, such as a minimum order size or regular ordering. These conditions may force the buyer to alter procurement patterns.
## Key Takeaway
Trade credit is rarely truly free. The major cost is the opportunity cost of the cash discount foregone, with goodwill, administrative cost and supplier conditions as secondary costs.