What is one major risk of using trade credit?

One major risk of using trade credit lies in the potential for over-leveraging. When a business relies too heavily on trade credit, it may accumulate a large amount of debt owed to suppliers. This can lead to financial strain, especially if the business's cash flow is not sufficient to cover these obligations. Over-leveraging can limit a company's financial flexibility and increase vulnerability to economic fluctuations or downturns. In turn, this heightened risk may impact the company's ability to secure additional financing or maintain favorable relationships with its suppliers, as they may become wary of extending further credit to a company that appears financially unstable.