Trade Credit

Trade Credit

A commercial credit is an agreement where a client can buy goods on account (without paying in cash), paying the supplier at a later date. In general, when the goods are delivered, a commercial credit is granted for a specific number of days: 30, 60 or 90. Jewelry companies sometimes extend the credit to 180 days or more. Commercial credit is essentially a credit that one company gives to another for the purchase of goods and services.

FASTENING 'Trade Credit'
The number of days for which a credit is granted is determined by the company that allows the credit, and both the company that allows the credit and the company that receives it agree to it. With the extension of the payment date, the company that receives the credit could sell the goods and use the net income to pay the debt. This type of credit is sometimes granted to encourage sales. Sometimes, a provider can give a discount, if the customer pays within a certain period of time. For example, a 2% discount if the payment is received within 10 days after the issuance of a 30-day credit.

Commercial credit applies to inter-company trade, and has been an essential way for companies to finance growth in the short term. Vendors or suppliers generally do not extend commercial credit to companies that have not yet established good credit, or have not demonstrated that they can make payments on time. However, commercial credit is a useful option for companies to receive crucial supplies for growth without paying immediately. In this way, they can sell their product before the payment expires, or use the cash flow released for other commercial purposes.

Another way of thinking about commercial credit is as a form of short-term debt, and yet it does not require any absolute interest, it often takes the form of an informal contract and is not issued by any bank or financial institution. Even so, if a supplier or company does not receive payment within the agreed terms of commercial credit, sanctions may be incurred in the form of fees and interest. It is worth noting that, in general, the supplier has a great interest in the survival of the company to which it has extended commercial credit. This ongoing business relationship is different from that of a typical bank and loan borrower, since the provider can choose to be more flexible with repayment terms; and in fact, he often chooses to do it.

Trends of 'Credit Trade'
Commercial credit is more rewarding for companies that do not have many financing options. After the 2008 financial crisis, traditional financing options for small businesses, such as debt and equity financing, became increasingly limited. Evidence of this is seen in the relatively recent increase in alternative financing means, such as crowdfunding and peer loans.

From an international point of view, studies have found that in countries outside the United States, commercial credit accounts for approximately 20% of all externally financed investment. Bank credit was the only form of financing more important than commercial credit, which shows that in most of the countries surveyed, commercial credit was the second most important financing option.

Similarly, research conducted in the United States, such as that of the Small Business Finance Survey conducted by the Federal Reserve Bank, demonstrates the importance of commercial credit. Commercial credit is used by approximately 60% of small businesses in the US UU., Which makes it the second most popular financing option after that of banks and other financial institutions.

Related terms and concepts
Commercial credit has a significant impact on the financing of companies and, therefore, is linked to other financing terms and concepts. Other important terms that affect commercial financing and financial futures are the credit rating, the commercial line and the buyer's credit. A credit rating is a general assessment of the credit worthiness of a borrower, whether a business or individual, based on financial history that includes timely payment of debt and other factors. Without a good credit rating, you can not offer business credit to a company.

A commercial line, or business line, is the credit account registration provided to a credit reporting agency, such as Standard & Poor's, Moody's or Fitch. The buyer's credit is related to international trade and is essentially a loan granted to importers specifically to finance the purchase of goods and services.