The balance sheet of any company lists accounts receivable on the asset side and accounts payable on the liability side. These categories represent credit extended to other companies (accounts receivable) and credit extended by other companies (accounts payable). These line items measure trade credit, a form of short-term financing provided by a selling company to a buying company. Essentially, the seller provides a loan to the buyer by allowing the buyer to postpone payment while taking immediate possession of goods or services. The selling company can increase overall sales through trade credit but not without cost. The decision to extend trade credit depends upon the incremental gain per unit of additional risk. Because many firms tie up a lot of capital or assume large obligations in trade credit transactions, decisions involving the management of credit can have a significant impact on cash flow, cost of capital sales growth, and debt capacity. Trade credit is one of those decisions that affect all aspects of the firm – marketing, production, finance, and so on. Each of these functional areas will have a distinct view of the role of trade credit.