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    Question

    Which of the following best describes the advantages

    and risks of using trade credit for managing working capital in MSMEs?
    A Trade credit allows MSMEs to delay payments, improving liquidity, but overuse can strain supplier relationships and increase costs. Correct Answer Incorrect Answer
    B Trade credit requires MSMEs to make advance payments, improving creditworthiness but adding to upfront expenses Correct Answer Incorrect Answer
    C Trade credit is a form of equity financing where suppliers take ownership stakes in MSMEs. Correct Answer Incorrect Answer
    D Trade credit is available only to large enterprises with established supplier relationships Correct Answer Incorrect Answer
    E Trade credit provides immediate cash to MSMEs, secured by personal guarantees. Correct Answer Incorrect Answer

    Solution

    Trade credit helps MSMEs manage working capital by delaying payments to suppliers. While beneficial for short-term liquidity , excessive reliance can strain relationships and result in higher costs .

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