Trade credit

Bootstrapping Term

When businesses selling products or services to other businesses allow those business customers to pay after delivery, that is called trade credit.

The use of trade credit from large suppliers is essential to many young and small companies. While technically a form of debt, from an entrepreneur’s perspective receiving and growing trade credit from suppliers is an important element of bootstrapping. On the other hand, extending trade credit to business customers is a financial strain on many young and small companies.

Typically trade credit is short-term; 30 days is typical, 60 or 90 days of trade credit is possible and in some specific industries standard practice. And typically trade credit does not lead to interest charges if paid on time.

If you will be buying from or selling to lots of businesses you should find out what trade credit terms are typical to help you plan cash flow.

Don Gooding

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