trade credit

The trade credit take place when a supplier allows to his customers the way to pay for the goods or the service  in the future, not just at the moment of the purchase or in the hire of the service.

The customers go to the suppliers looking for financing in order to obtain products that are very necessaries and can not afford today. The customers don’t have enough money to pay at the moment and they ask to pay in the future.  If the customer doesn’t pay, the supplier can take legal actions against them.

With this trade credit, what the suppliers do is to allow to the customers continue with their business without having the money in this moment to pay the bills. So the customers could sell the finished goods and earning money enough to pay off a debt with the suppliers

Its important to remember that the debt has to be accounted at the time of his agreement, to be paid at the end of the period, in order to not break the contract.