Trade credit refers to an agreement between two companies, where the supplier of goods or services accepts a deferred payment from its client.
Trade credit management refers to the process of managing the credit extended to customers and the risk associated with that credit. This includes tasks such as credit application and analysis, credit limits, and collection.
Effective trade credit management helps a company to minimize the risk of bad debt and maximize its working capital. This includes monitoring customer payment patterns, setting credit limits, and implementing credit control procedures such as sending invoices and reminders. It also involves working closely with customers to resolve payment disputes or issues, and negotiating payment terms and conditions that are favorable to both the supplier and the customer.