It is the simplest and most importance source of finance for short term for many firm. It is the form of short term financing which is common to all most all business. It is a system where goods and services are delivered to a firm for use in it production, they are not

paid for immediately. This good and services are used to produce income before payment are made. On the payment of the facility, account payable tends to decrease. There is no explicity cost attached to trade creditors but it has an implicit cost in the sense that if the debt is not paid on time. It could make the business to lose the cash discount from payment. The worthiness from the buyer, no more guaranty for the future order and may enable the seller to raise the price of his product so that the buyer will be well paid for the facility at the end.

 Advantages of trade credit

1. Convinient, Informal and cheap: It is commonest and informal, it is because a normal part of the business in the most product market. There is no need to arrange for financing formerly

2. It is more easily used by firms which do not qualify for credit for a financial institution. The firms does not need to provide collateral or adhere to a strict payment schedule in the loan.

3. Trade credit can represent sales promotion device offered by a seller

1. It leads to fraud

2. No written agreement

3. Late payment

4. Problem of neglecting to pay the debt when due

Risk is the probability that actual future return is below expected return. Risk refers to measurable uncertainty inherent in the process of decision making. Risk is also defined as the possibility or the chance of suffering a loss I.e the possibility that he expected would be different from the actual and this different could be measured with the degree of certainty.

In conclusion risk is commensurable in the level of return. A risky asset reserves a commensurable high return. If a business is very risky and expected return not commensurable , a rational investor may not be willing to invest in it,  even if the return is higher than others.

Classification of risk
1.  SYSTEMATIC RISK: This is the risk inherent in an economy which is common to all industry and cannot be reduced or eliminated by means of diversification by the investors. Part of the risk that cannot be diversified because it is caused by factor common to all activity. Such factor will include the general level of demand in the economy, interest rate, inflation rate and labour cost.

2. NON SYSTEMATIC RISK: This  are risk that are peculiar to an industry or business in which a company operates. For example,  business risk are those peculiar to the industry in which the company operates such as market, raw material. This portion of risk can be eliminated by diversification. Unsystematic risk is insurable and can be reduced by means of portfolio diversification