Glossary · Credit management
Trade credit
Trade credit is when a supplier lets a business customer pay after delivery, on agreed terms such as net 30, instead of up front.
Every B2B invoice with payment terms is trade credit: the supplier delivers now and the customer pays later. It is an interest-free loan in all but name, and one of the most common forms of short-term financing between businesses.
For buyers, trade credit funds operations without a bank. For suppliers it is a cost and a risk — the money is out of their hands until the due date, and longer if the customer pays late or not at all.
Managing that risk is what credit control is for: deciding who gets credit, how much (the credit limit) and on what terms, and following up when it isn’t honoured.
Example
A supplier delivers €20,000 of services on net 30 terms. For those 30 days it is financing the customer’s €20,000 — free of charge, and without security.