Trade Credit, also recognized as Accounts Payable Financing, enables a business to purchase goods (typically for resale) without having to pay their supplier in advance or Cash on Delivery (COD).
How Trade Credit Works?
When a business receives goods, they normally have 30-90 days to pay the supplier or manufacturer. Trade Credit, upon approval, issues a line of credit to the business owner. The business owner can repay the credit when they sell the inventory, or a fund-able receivable is established which can be sold to an invoice factoring company.
Trade credit is especially helpful when the supplier offers a payment discount based on receiving payment within a detailed period (3% cash, 2% 10-days, net 30, etc.) leaving more profit for the business owner. An extended payment date also creates cash flow the business can use for other reasons, including paying monthly recurring bills.
Trade Credit is an indispensable tool for many businesses to grow. Most suppliers however will not offer trade credit directly to new businesses because of the higher risk of failure. Forming a line of Trade Credit with Noble Business and developing a good payment history will establish the credit history needed to aid the company’s eligibility for future Trade Credit directly from the supplier.
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