What is trade credit?
In GCSE Business, trade credit is a business arrangement that allows a delayed payment for an agreed period when a business provides goods or services to another business. The time period is typically 30 to 90 days. It is a form of short-term financing between businesses.
When a retailer orders £5,000 worth of stock from a wholesaler on 60-day terms, it can receive and sell the goods before paying for them. This improves cash flow by widening the gap between receiving income from sales and paying suppliers. For example, if the retailer sells half the stock within 30 days, they'll have cash available to help pay the supplier when the invoice is due.
Companies commonly use trade credit for regular business purchases like inventory, supplies and materials. However, late payment can damage business relationships and may incur charges, so organisations must manage their trade credit carefully to maintain good supplier relationships.
Trade Credit Revision Resources to Ace Your Exams
Save My Exams has a great range of resources to explore the topic of trade credit further.
Read our GCSE Business sources of finance revision notes, or test your knowledge of entrepreneurs with our exam questions to improve your grades.
Sign up for articles sent directly to your inbox
Receive news, articles and guides directly from our team of experts.
Share this article
written revision resources that improve your