Supplier trade credit
Your suppliers let you pay for goods or services some time after you receive them, often 30 or 60 days later. Usually free if you pay on time, but giving up an early-payment discount can make it expensive.
- No security
How it works
When a supplier sells to you on credit, you get the goods or services now and pay the invoice later, on agreed terms such as "net 30" (the full amount within 30 days) or "net 60". In the meantime you can sell the goods or use them to earn money before the bill is due. Federal rules describe trade credit as a business buying goods or services from another business without paying in full straight away.
Some suppliers offer a cash discount for paying early. For example, "2/10 net 30" means you can take 2% off if you pay within 10 days, or pay the full amount by day 30. Skipping that discount to keep your cash 20 days longer costs 2% for 20 days, which works out at more than 36% a year. If you can pay early, the discount is usually worth taking.
How to get it: ask for credit terms when you open an account. New businesses often have to pay upfront or on delivery at first, then get terms once they have a payment record. Suppliers may check your credit and ask for trade references, and some ask the owner to guarantee the account personally.
If you are turned down: the Equal Credit Opportunity Act (Regulation B) covers trade credit. A supplier must tell you, within a reasonable time, what it decided, and if it refuses you credit, give you the reasons in writing if you ask in writing within 60 days.
Tax: a cash discount you take reduces what you paid for the goods. The IRS lets you either deduct it from your purchases or record it as discount income.
Upsides and downsides
Upsides
- Usually costs nothing if you pay within the terms
- No loan application, and no lender involved
- Grows as you buy more, once a supplier trusts you
Downsides
- New businesses may have to pay upfront at first
- Only covers what you buy from that supplier, not wages or rent
- Skipping an early-payment discount can cost more than a loan
Risks
- Paying late can lose you the account, your terms or a key supplier
- A personal guarantee on the account makes you liable for unpaid bills
- Relying on long terms can hide a cash flow problem until a supplier shortens them
What it costs
- How it is priced
- Usually free within the agreed terms. Late payment can bring fees or interest set by the contract
- Costs that are easy to miss
- Early-payment discounts you give up by paying later
- Late fees or interest if you miss the due date
- Suppliers may raise prices or cut your credit if you pay late
Limited by how much you buy from each supplier and the credit limit each one sets.
Does it fit?
Could fit when
- You buy stock or materials regularly and need time to sell before you pay
- Your business already has a payment record with its suppliers
Unlikely to fit when
- Your business has not started trading yet, so suppliers may ask you to pay upfront
- Your suppliers offer a large early-payment discount you could afford to take
Who can use it
- Business types: Sole proprietorship, Partnership, LLC, S corporation, C corporation, Benefit corporation, Cooperative, Nonprofit
- Open to businesses with no sales yet
- Suppliers usually want a payment record or trade references before offering terms
- Some ask the owner to guarantee the account personally
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all own cash and no-cost
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- Trade references
- Business details for credit checks
- Payment calendar
Regulation and protections
Regulators: Consumer Financial Protection Bureau (CFPB); Federal Trade Commission (FTC).
Who runs it: Private providers, nationwide.
Not regulated lending. The Equal Credit Opportunity Act (Regulation B) still applies to trade credit: a supplier must tell you its decision, and must give written reasons for refusing if you ask in writing within 60 days. Late fees and interest come from the contract and state law.
Types of provider: Your suppliers, wholesalers and manufacturers.
Also consider
What has changed
- No longer says it is only for businesses that sell to other businesses: trade credit is what a business gets when it buys from another business, whoever its own customers are.
Sources
- 12 CFR 1002.104 (Regulation B): trade credit defined · checked October 17, 2026
- 12 CFR 1002.9 (Regulation B): notifications, including for trade credit · checked October 17, 2026
- IRS Publication 334: Tax Guide for Small Business (cash discounts) · checked October 17, 2026
Something wrong or out of date?
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