What Is Trade Credit?
Trade credit is stock you receive from a supplier now, with an agreement to pay for it later — the same mechanism as customer debt, just running in the opposite direction.
Direct answer
Trade credit is stock you receive from a supplier now, with an agreement to pay for it later. It's the same mechanism as customer debt, just running in the opposite direction — instead of a customer owing you, you owe a supplier.
This is commonly referred to as a trade payable in formal accounting — see the IFRS Foundation's Glossary for related terminology.
The mirror of customer debt
On What Is Customer Debt, a customer takes goods and pays you later. Trade credit is that exact relationship with you on the other side: a supplier gives you stock, and you pay them later. The bookkeeping logic is identical — only the direction of the money changes.
A supplier delivers ₵5,000 worth of stock and agrees to be paid in 30 days rather than on delivery.
| Stock received now | ₵5,000 |
| Paid now | ₵0 |
| Trade credit (owed to supplier) | ₵5,000 |
Why suppliers offer this
Just as you might extend credit to a reliable regular customer, a supplier extends credit to businesses they trust to pay — it lets you stock up without needing the full cash amount on hand the moment stock arrives, which is often what makes regular restocking possible at all for a small shop.
Where this connects
Once stock is on credit, two questions follow: whether paying it back early, on schedule, or as late as possible actually helps or hurts your cash flow, and whether the supplier offering these terms is one worth relying on — see How to Choose a Reliable Supplier.
One important difference from customer debt is worth naming directly: you generally have far less influence over a supplier's terms than over the credit terms you set for your own customers — the supplier decides what they'll offer, not you.