What is Trade Credit?

Trade credit is credit given by one merchant to another for the purchase of products and services. Trade credit allows for the purchase of materials without the need for immediate payment. Such credits appear as ‘sundry creditors’ or ‘accounts payable in the records of the buyer of goods. Business organisations frequently utilise trade credit as a form of short-term finance.

It is offered to customers that have a good financial status and reputation. The amount and period of credit provided are determined by factors, such as the purchasing firm’s reputation, the seller’s financial status, the volume of purchases, the seller’s payment history, and the degree of market competition. Trade credit terms might differ from one industry to another and from one customer to another.