Today, offering trade credit is essential for companies wishing to conquer new markets and build a long-term commercial relationship. The advantages of trade credit make it indispensable in certain sectors such as distribution or construction. Trade credit does involve various risks, but there are ways to control them effectively.
What is trade credit?
Here is a trade credit definition: an agreement between two B2B companies, where a supplier of goods or services accepts a deferred payment from its customer.
This agreement does not cost your customer anything: they don’t pay any fees or interest.
A trade credit agreement is a sort of 0%-loan – referred to as a “commercial loan” – that you grant your customer when invoicing a product.
When making this agreement, you need to define invoice payment terms to provide details about the expected payment and specify how much time your customer has to pay.
The advantages and disadvantages of trade credit
Advantages of offering trade credit
The pros and cons of getting trade credit – customer perspective
Trade credit is a potential important source of financing for your customer. Such loans are registered as “accounts payable” on your customer's balance sheet: they make up part of the company's working capital and have a direct – and positive – impact on its cash flow.