Trade credit
Supplying a customer now and letting them pay later under agreed terms, rather than at the time of sale.
What it means
Trade credit is the arrangement where a supplier provides goods or services on account and the customer pays later, within agreed terms, instead of upfront. It is a normal and widespread part of business-to-business trading, effectively a short-term, interest-free loan from supplier to customer.
Extending trade credit creates accounts receivable for the supplier and accounts payable for the customer.
Managing the risk
Trade credit smooths trade but carries the risk that a customer does not pay. Sensible credit checks, signed terms of trade and clear credit limits reduce that risk, while prompt follow-up keeps overdue accounts from aging. Overdue trade-credit accounts are the most common type of debt referred for recovery. See credit terms, and keep records clean with Merion invoicing.
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