It is primarily known as non-fund based working capital financing.
Bank guarantee is acquired by a buyer or seller to reduce the risk of loss to the opposite party due to non-performance of the agreed task which may be repaying money or providing of some services etc.
Just like other sources of working capital financing, trade credit also comes with a cost after the free credit period.
Normally, it is a costly source as a means of financing business working capital.
Working capital financing is done by various modes such as trade credit, cash credit/bank overdraft, working capital loan, purchase of bills/discount of bills, bank guarantee, letter of credit, factoring, commercial paper, inter-corporate deposits etc.
The arrangement of working capital financing forms a major part of the day to day activities of a finance manager.
This is simply the credit period which is extended by the creditor of the business.