Trade credit as a cash flow tool

2 min read

Supplier termsTime to pay after delivery

Often freeNo interest if paid on time

A relationshipBuilt on paying reliably

How trade credit funds your business

Trade credit is the gap a supplier gives you between delivery and payment — typically 30 days. During that window you can use, sell, or convert their goods before you have paid for them, effectively borrowing from your supplier at no interest. Aggregated across all your suppliers, trade credit is usually the largest single source of finance on a company's balance sheet, and it costs nothing when managed well.

Using it deliberately

Taking the full agreed term is fair and sensible — paying a 30-day invoice on day 30, not day 5, keeps cash in your business for longer at no cost. That is not sharp practice; it is using the terms you were offered. What matters is paying on time, not late: reliability is what earns you better terms and priority when supply is tight. See how to negotiate better supplier terms.

The line you should not cross

Stretching creditors beyond their terms — paying late without agreement — is a different thing entirely. It damages relationships, risks supply, can trigger stop-credit or cash-on-delivery, and shows up in your aged creditors as mounting overdue balances. Suppliers talk to each other and to credit reference agencies; a reputation for late payment follows you. Trade credit is a privilege, not a right.

Weighing early-payment discounts

Some suppliers offer a discount for paying early — say 2% for settling in 10 days instead of 30. The maths can be compelling: a 2% discount for paying 20 days early is a very high annualised return on that cash. But only take it if the cash is genuinely spare; sacrificing liquidity for a discount can be a false economy. See early payment discount.

When trade credit isn't enough

Trade credit funds the supply side, but not wages, tax, or the wait for customers to pay. Where the gap runs wider than your suppliers' terms cover, a short facility fills the rest.

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See indicative terms on business loans, or apply online in minutes.

Frequently asked questions

Is trade credit really free finance?

When you pay within the agreed terms, yes — you use the supplier's goods before paying for them at no interest. It's often the largest and cheapest source of finance on a company's balance sheet.

Is it fair to take the full payment term?

Yes. Paying a 30-day invoice on day 30 rather than day 5 keeps your cash working for longer and is exactly what the terms allow. What matters is paying on time, not early.

Should I take early-payment discounts?

Only if the cash is genuinely spare. A 2% discount for paying 20 days early is a high annualised return, but sacrificing liquidity you need for a small discount can be a false economy.