---
title: "What is trade credit? A supplier's guide to terms and cost"
description: "Trade credit is a B2B agreement where a supplier delivers now and the buyer pays later, most often within 30 days. What it costs, and how to offer it safely."
url: https://www.paidnice.com/blog/trade-credit
---

# What is trade credit? A supplier's guide

Written by

Denym Bird
Denym BirdCo-founder & CEO of Paidnice
Denym started Paidnice in 2022 after customers paying late left his own business short on payroll. He has led it to $1 billion collected on time across more than 1 million invoices, and writes about credit control, late fees and getting paid on Xero and QuickBooks.

Expert verified

Co-founder & CEO of Paidnice

Denym mapped out trade credit from the supplier's side: what the terms mean, what every day of credit costs you, what a 2/10 net 30 discount works out to per year, and how to offer terms without funding bad debt.

Reviewed by Jack Daffron
Jack DaffronCo-founder of Paidnice
Jack is a co-founder of Paidnice. He builds the product that sends reminders, adds late fees and takes payments for businesses on Xero and QuickBooks.

Co-founder of Paidnice

Published Oct 22, 2026 · 8 min

Listen to this article, read by Denym

Read by Denym Bird8 min

0:008:12

## Summary

Trade credit is a business-to-business agreement where a supplier delivers now and the buyer pays later, most often within 30 days of the invoice. For the supplier it is an interest-free loan, so it needs a limit, a policy and follow-up.

- **The terms:** Net 30, net 60 and net 90 set the due date; 2/10 net 30 adds a 2% discount for paying within 10 days.
- **The cost:** A 2/10 net 30 discount works out to about 37% a year on a simple annualized basis, a high price for 20 days of cash.
- **The safeguard:** Set a credit limit for every customer on terms, and score each one on how they pay you: the score moves with how they pay, and you review the limit against it.

Contents▾

You shipped the order this morning, and the invoice says net 30. Your customer's accounts payable team has filed it next to every other supplier's invoice, and a Federal Reserve staff study found credit like yours made up [about 20 percent of small firms' liabilities in 1987](https://www.federalreserve.gov/pubs/staffstudies/1990-99/165sum.htm). Here is what you have agreed to, what it costs you, and how to offer it without funding someone else's cash flow problem.

## What is trade credit?

**Trade credit is credit extended by a seller who delivers goods or services without requiring immediate payment, so the buyer pays on an agreed later date, most often within 30 days of the invoice.**

The Reserve Bank of Australia found that ["The most common payment term offered by businesses is for payment within 30 days"](https://www.rba.gov.au/publications/bulletin/2013/sep/5.html) (2013). Atradius reports that US payment terms [average 35 days from invoicing](https://resources.atradius.us/?p=1044) (2023). Longer terms are used in some industries.

Free: Payment reminder email templatesCopy the reminder emails for before, on and after the due date.

Both sides see the same arrangement from different ends. The buyer gets stock or a service today and keeps its cash for a month or more, which is why trade credit is often described as a short-term, interest-free loan. The supplier makes the sale, raises the invoice, and waits.

|  | Buyer | Supplier |
| --- | --- | --- |
| Gets | Goods or services now, cash kept until the due date | The sale, and a customer who can order before paying |
| Gives | A promise to pay by the due date | An interest-free loan for the length of the terms |
| Risks | Late fees or interest after the due date | Cash arriving late, or not at all |

A review commissioned by the British Business Bank puts it plainly: trade credit is ["the agreed deferral of payment"](https://british-business-bank.co.uk/sites/g/files/sovrnj166/files/2023-07/Trade-Credit-A-Literature-Review.pdf), extended by firms for whom lending is a secondary activity. A bank lends as its main business. A supplier lends as a side effect of selling, and the same review notes the arrangement is largely unregulated.

It is also common. The UK SME Finance Monitor found [38% of SMEs used trade credit](https://www.ipsos.com/sites/default/files/ct/publication/documents/2026-04/SME%20Monthly%20charts%20-March%202026%20for%20publication.pdf) in the three months to March 2026. From here on, you are the lender: every open invoice is money you have lent.

## How does trade credit work?

**Trade credit works through the payment terms on the invoice: the supplier delivers, issues an invoice with a due date set by the terms, and the buyer pays on or before that date.**

1. Supplier delivers the goods or completes the service.
2. Supplier issues an invoice that states the terms, for example net 30.
3. The due date is set by the terms: 30 days from the invoice date.
4. Buyer pays on or before the due date. If an early payment discount applies, the buyer pays less within the discount window.

The terms do the work. Net 30, net 60 and net 90 set how many days the buyer has. A two-part term such as [2/10 net 30](https://www.paidnice.com/dictionary/2-10-net-30) adds an early payment option: 2% off if paid within 10 days, otherwise the full amount within 30. Our [net 30 calculator](https://www.paidnice.com/calculators/net-30-calculator) turns any invoice date and term into a due date.

Most trade credit is open account: the invoice and its terms are the whole agreement, with no loan contract or promissory note behind them. That is why it is quick to offer, and why nothing forces payment when a buyer decides your invoice can wait.

Paidnice insight

Shorter terms get paid sooner. In Paidnice data, the same customer pays a 14-day invoice 9 days sooner than a 30-day invoice, with no rise in unpaid invoices (22,761 customers).

## What does trade credit cost the supplier?

**Trade credit costs the supplier the cash tied up in unpaid invoices, the risk that some are never paid, and any early payment discount given up to get the money sooner.**

The first cost is the loan itself. A $10,000 invoice on net 30 is $10,000 you have funded for a month, at 0% interest to the buyer. Multiply by every open invoice and you have the size of the loan book you run for your customers.

The second cost is the discount. Suppliers offer 2/10 net 30 to pull cash forward, and few work out what it costs. Here is the arithmetic for a $10,000 invoice.

The same arithmetic for other common terms, on the same $10,000 invoice:

| Terms | Discount on $10,000 | Days bought | Cost per period | Annualized (365-day year) |
| --- | --- | --- | --- | --- |
| 1/10 net 30 | $100 | 20 | 1.01% | about 18.4% |
| 2/10 net 30 | $200 | 20 | 2.04% | about 37.2% |
| 3/10 net 30 | $300 | 20 | 3.09% | about 56.4% |
| 2/10 net 60 | $200 | 50 | 2.04% | about 14.9% |

To the buyer, the discount is a 37% return for paying 20 days early. To you, it is the rate you pay to get your own money 20 days sooner. If a bank line costs you less than that, the discount is the more expensive way to speed up cash.

The third cost is bad debt. The [Federal Reserve study](https://www.federalreserve.gov/pubs/staffstudies/1990-99/165sum.htm) frames the buyer's choice as pay early and take the discount, pay on the due date, or pay late and risk added costs. Some buyers pick the third option every time, and a share of those never pay at all.

## How do you offer trade credit safely?

**Offer trade credit the way a lender would: take an application, assess the customer, set a limit, write the rules down, and apply the same rules to every account.**

Each of these steps has a full guide of its own.

- Start with a [credit application form](https://www.paidnice.com/blog/credit-application-form) that collects the legal entity, the people who approve and pay invoices, and trade references, before the first order ships.
- Assess the customer with the [five Cs of credit](https://www.paidnice.com/blog/five-cs-of-credit), the framework lenders use to judge whether and how much to lend.
- Decide how much to lend with a method for [setting a credit limit](https://www.paidnice.com/blog/how-to-set-a-credit-limit) for each customer, then put that figure on the account.
- Write a [credit policy](https://www.paidnice.com/blog/credit-policy-template) so terms, limits, late fees and the follow-up sequence are decided once, before the first late invoice arrives.

Two more decisions belong to you. Terms: the shorter the better, because every extra day is a day you fund. Late fees and interest: state them on the invoice and apply them, so the credit carries a cost once the due date passes. See [late fees](https://www.paidnice.com/late-fees) for how both work on the ledger.

Trade credit insurance covers the bad-debt part of the risk for a premium. It is a separate decision with its own costs, covered in our [trade credit insurance](https://www.paidnice.com/dictionary/trade-credit-insurance) entry.

## How does Paidnice help you get paid on trade credit?

**Paidnice runs your trade credit terms on top of Xero or QuickBooks: it reminds, sends statements, applies late fees, scores every customer on how they pay you, and raises an alert when a credit limit is breached.**

Every open invoice is a loan you have made. Paidnice closes the gap between invoice and payment by working each one until it is paid.

- Every customer gets a 0 to 100 credit score from their payment history with you. Each starts at 100 and loses points for paying late and for the current overdue position, so a slipping payer is visible before the next order ships.
- Set a credit limit for each customer, and going over it can trigger an escalation to the person who decides whether to [put the account on credit hold](https://www.paidnice.com/blog/credit-hold) and stop supply until the buyer catches up.
- Reminders go out before and after the due date, and customers receive statements on the schedule you choose, on every plan.
- Late fees post to the ledger as invoices, and a prompt payment discount can be added to new invoices and removed when the window closes.

Customers on the Custom plan can add credit checks through Creditsafe for new accounts. The native score is built from the customer's own behavior with you and tells you how this customer treats your invoices. See how it works on the [credit scoring](https://www.paidnice.com/credit-scoring) page.

Paidnice insight

Terms stated on the invoice and followed up on time get paid. Businesses that switch on Paidnice see half as many late invoices in the first 30 days.

## Questions about trade credit

**Trade credit is the short-term credit a supplier gives a business buyer by letting them pay the invoice later. The questions below cover examples, interest, length and recording.**

What is an example of trade credit?

A wholesaler delivers $10,000 of stock to a retailer and issues an invoice on net 30 terms. The retailer has the stock today and pays in 30 days; the wholesaler has extended $10,000 of trade credit for a month.

Do you have to pay interest on trade credit?

Within the terms, no. After the due date the supplier can charge late fees or interest if the terms say so, and in the UK [statutory interest](https://www.legislation.gov.uk/ukpga/1998/20) applies to late payments between businesses.

How long is trade credit?

Most trade credit is due within about 30 days of the invoice: the [RBA](https://www.rba.gov.au/publications/bulletin/2013/sep/5.html) found 30-day terms the most common, and [Atradius](https://resources.atradius.us/?p=1044) puts US terms at 35 days on average. Longer terms are used in some industries.

Is trade credit short-term or long-term financing?

Short-term. Trade credit is repaid within the terms of a single invoice, most often within about a month.

Is trade credit the same as accounts payable and accounts receivable?

Trade credit is the arrangement; accounts payable and accounts receivable are where it is recorded. The buyer records the unpaid invoice as payable, the supplier as receivable.

What is a trade credit policy?

A trade credit policy is the written set of rules a supplier applies to every customer on terms: who qualifies, how much credit they get, the payment terms, the late fees, and what happens when an invoice goes overdue. Our [credit policy template](https://www.paidnice.com/blog/credit-policy-template) sets one out section by section.

What is a disadvantage of trade credit for the supplier?

The supplier funds the sale until the buyer pays and carries the risk of not being paid at all. A credit limit and a follow-up sequence keep both costs in check.

What are the benefits of trade credit?

For the buyer, trade credit is working capital with no bank approval, for the length of the terms. For the supplier, it wins orders from customers who need time to pay. Both depend on the supplier getting paid on the due date.

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## About the editorial team

Written byDenym BirdCo-founder & CEO of Paidnice

Denym started Paidnice in 2022 after customers paying late left his own business short on payroll. He has led it to $1 billion collected on time across more than 1 million invoices, and writes about credit control, late fees and getting paid on Xero and QuickBooks.

Reviewed byJack DaffronCo-founder of Paidnice

Jack is a co-founder of Paidnice. He builds the product that sends reminders, adds late fees and takes payments for businesses on Xero and QuickBooks.

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