When a business discovers an attractive new market opportunity, it will want to allocate as many resources to it as quickly as possible, especially if the window of opportunity to take advantage of the market is small.

If a business does not have sufficient retained profit to take advantage of the opportunity, or is not satisfied with this slow method, they will want to use credit from their suppliers to pay their short-term costs.

Unfortunately, these short-term costs don't have an immediate return - the return on investment comes quite a way down the line. Overtrading is said to have occured if the business exhausts its credit lines before getting a return. The business has self-destructed in a bevy of expansion.

The key is, as with most things, controlling zeal. A business should not expand beyond its credit limit, because even though the returns down the line look attractive, they're no good if you can't collect them because you've become insolvent.

O`ver*trad"ing (?), n.

The act or practice of buying goods beyond the means of payment; a glutting of the market.


© Webster 1913.

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