What is Trade Credit?
Nexa Consultancy | Startup & Finance Glossary
Trade credit is a B2B arrangement where a customer is allowed to purchase goods or services on account and pay the supplier at a later date. It is a common business practice that helps manage cash flow for both the buyer and the seller.
For Startups: For a startup, receiving trade credit from its suppliers (e.g., 30 or 60-day payment terms) is a valuable source of short-term, interest-free financing. It allows the startup to produce and sell its goods before it has to pay for the raw materials. Conversely, when a startup offers trade credit to its own customers, it creates accounts receivable and needs to manage the associated credit risk.
Example: A hardware startup's supplier allows it to pay for a shipment of components 60 days after delivery. This 60-day period is the trade credit extended to the startup.