Trade Credit Is a Business Tab With a Due Date

Pallets of coffee beans roll into the café's storeroom on Monday, and not a dollar leaves the register. The invoice taped to the top box gives the owner thirty days to come up with $3,000.

Trade credit is business-to-business buy now, pay later: a supplier delivers goods or services and collects the money afterward. No bank sits in the middle — the supplier itself is the lender.

Trade credit at a glance

• The credit comes from a supplier, not a bank or card issuer.
• "Net 30" means the full invoice is due within 30 days.
• The buyer books a payable; the supplier books a receivable.
• Terms like "2/10, net 30" pay the buyer to settle early.

Thirty days of borrowed time

With $3,000 of beans on net 30 terms, the café can brew and sell all month before the bill comes due. Done right, the product generates the very cash that pays for it.

That's the appeal for the buyer's cash flow: inventory starts working before any money goes out. The supplier carries the wait — and the risk of never getting paid.

One invoice, two sets of books

The unpaid $3,000 sits on the café's books as accounts payable. The identical invoice sits on the supplier's books as accounts receivable.

Nothing about the beans changed — only the promise wrapped around them. That promise is what makes trade credit credit.

The price of paying slowly

Now take a $10,000 invoice marked "2/10, net 30." Pay $9,800 within 10 days, or the full $10,000 by day 30.

Skipping the discount buys 20 extra days of cash for $200 — an annualized cost near 37%. That's steep enough that healthy companies often borrow elsewhere just to grab the discount.

When the tab strains the trust

Pay late and the fees are usually the smallest cost. Suppliers tighten terms, demand cash up front, or quietly move a slow payer to the back of the delivery line.

The Federal Reserve's small-business finance overview shows how routinely suppliers extend this kind of short-term credit.

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