Trade Credit
Short definition
Trade credit is the payment term a supplier grants on goods and services. It looks cheaper than a bank loan and is the dearest finance when the relationship is cut.
Detailed explanation
A longer DPO eases NWC and raises SGR on paper. An early-payment discount makes the implicit rate visible: the missed discount annualised is Kd.
In a crisis the supplier shortens terms or demands cash; it is cut before the bank line. Insurance and guarantees tie trade credit into the bank pack.
Why it matters for the CFO
Growth is often funded by loading the supplier. That pulls the maturity wall forward on every invoice.
How to read it
Implied rate = discount / (1 − discount) × 365 / days remaining. “Free terms” sit above that cost.
Numerical example
2% / 10 days, net 30: missing the discount is ≈ 0.02/0.98 × 365/20 ≈ 37% implied.
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.