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Trade credit
Also called supplier credit, vendor terms, net 30.
Terms extended by a supplier allowing a business to take goods now and pay later, functioning as short-term financing that usually costs nothing unless a discount is forgone.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
Standard terms are expressed as net 30, net 60 or similar, sometimes with an early payment discount written as 2/10 net 30 — two percent off if paid within ten days, otherwise the full amount at thirty. Taking the goods and paying on day thirty is free financing for thirty days. Skipping a discount to do it is not free at all, and the implied cost of forgoing a discount over the extra twenty days is high when annualised.
For a growing business it is often the cheapest working capital available and the most underused. Extending supplier terms from thirty to sixty days frees the same cash a facility would provide, without a lien, a guarantee or a fee — the constraint is the supplier's willingness, which tracks payment history.
Suppliers that report to commercial credit bureaus create trade lines, which is how a business credit file gets built. A business with no reported trade lines has a thin commercial file regardless of how long it has traded, which affects pricing everywhere else.
Where this one catches people
Stretching payables past terms is treated internally as a free source of cash and externally as deterioration. Suppliers tighten terms, move accounts to prepay, and report late. Meanwhile an accounts payable ageing that shows growing 60- and 90-day buckets is one of the first things an underwriter reads as distress — and on a factoring or ABL file, it can also raise the risk of supplier claims against the inventory being lent against.
Worked through
Illustrative only. Terms of 2/10 net 30 on a $50,000 invoice. Paying on day ten costs $49,000. Paying on day thirty costs $50,000. The $1,000 buys twenty extra days on $49,000 — which annualises to a cost far above most bank credit, and is worth comparing against a line of credit draw.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Trade credit — common questions
What does trade credit mean?
Terms extended by a supplier allowing a business to take goods now and pay later, functioning as short-term financing that usually costs nothing unless a discount is forgone.
Where does trade credit catch people out?
Stretching payables past terms is treated internally as a free source of cash and externally as deterioration. Suppliers tighten terms, move accounts to prepay, and report late. Meanwhile an accounts payable ageing that shows growing 60- and 90-day buckets is one of the first things an underwriter reads as distress — and on a factoring or ABL file, it can also raise the risk of supplier claims against the inventory being lent against.
Is trade credit the same as an interest rate?
Trade credit is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does trade credit apply to?
Working Capital.
Is there a worked example of trade credit?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside trade credit?
Accounts Payable, Business credit report, Invoice factoring, Vendor financing, Working capital.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.