Quick answer
Trade credit is when a supplier delivers goods or services and lets your business pay later, typically 7 to 60 days after the invoice or the end of the month. It's the most common form of short-term finance between Australian businesses and usually carries no interest if paid on time. To the buyer it's a payable; to the supplier it's a receivable. Lenders look at how promptly you pay it.
Key points
- A supplier's agreement to deliver now and be paid later on set terms
- Interest-free when paid on time, but early-payment discounts forgone are a real cost
- Trade account applications often include a personal guarantee and sometimes a charge over property
- Lenders and credit bureaus watch how quickly you pay suppliers
Walk into almost any trade supplier, wholesaler or food distributor with an account and you’ll leave with stock you haven’t paid for yet. That arrangement is trade credit: the supplier hands over goods or services now and agrees to wait for payment until a set date. For most small businesses it’s the first, and largest, source of credit they ever use.
How trade credit works day to day
You apply for a trade account, the supplier assesses you, and it grants a credit limit and terms. Typical terms look like:
- 7 or 14 days from invoice, common for smaller suppliers and newer accounts
- 30 days from invoice, the most common standard
- 30 days end of month (EOM), meaning everything bought in March is due by 30 April
- 45 to 60 days, more often offered by larger suppliers to established customers
Nothing is charged for using the credit if you pay on time. Late payment may attract fees or interest under the supplier’s terms, and the account can be put on stop.
The same transaction has two sides. In your books it’s a debt to the supplier, recorded under accounts payable. In theirs, it’s a receivable they’re waiting on.
The clauses worth reading before you sign
Trade credit feels informal, but the application form is a contract, and a few clauses do a lot of work.
Personal guarantees. If your business is a company, most suppliers ask directors to guarantee the account personally. That means your own assets are exposed if the company can’t pay.
Charging clauses. Some credit applications go further and charge any real property the guarantor owns. Under that wording, a supplier owed money may be able to lodge a caveat over a director’s home. It’s worth knowing which accounts include this before a dispute arises.
Retention of title. Many suppliers keep ownership of goods until they’re paid in full and register that interest on the PPSR. If your business fails, those goods can be reclaimed. Our retention of title entry sets out the mechanics.
What it really costs: an example
A Ballarat building supplies customer buys about $40k a month on 30-day terms. The supplier offers a 2% discount for payment within 7 days.
Taking the discount saves $800 a month, or $9,600 a year. Skipping it costs nothing in fees, but the business is effectively paying $9,600 a year for an extra 23 days of credit. If a cheaper source of working capital is available, such as a business line of credit, paying early and drawing on that line can come out ahead. Run the comparison in dollars, not in percentages, before deciding.
How lenders see your trade credit
Lenders like to see a business that uses trade credit well: regular suppliers, sensible limits and bills paid when due. Signs that suppliers are being stretched (rising aged payables, repeated “final notice” emails, accounts on stop) suggest a cash flow problem, and lenders will ask about it.
Two related points:
- Some suppliers share payment data with commercial credit bureaus, so a habit of paying 60 days late on 30-day terms can show up in a business credit report.
- Flip it around: if you’re the one selling to a big customer, the Payment Times Reporting Scheme makes entities with annual income above $100 million publish their payment terms and actual payment times to small suppliers. The public register lets you see a customer’s record before you agree to its terms.
If a supplier is pushing for payment now and you can’t stretch any further, we can look at short-term funding options.
Related terms
- Supplier credit: another name for the same arrangement, viewed from the buyer’s side.
- Trade finance: lender-funded facilities that pay suppliers on your behalf, often for imports.
- Working capital: trade credit is one of its biggest moving parts.
- Our guide on negotiating better supplier terms has practical scripts.
When suppliers want paying before customers pay you
Trade credit holds up nicely until supplier due dates start landing well before customer receipts. That’s where a funding line for paying suppliers or invoice finance can bridge it. The enquiry is roughly a minute’s work, and asking triggers no credit check. Nobody shops your application around the lending market; one of our team studies your numbers and rings you to talk them over. Fill the form in honestly and precisely, and we’ll have a far better chance of matching the right facility on the first go.
Frequently asked questions
What are typical trade credit terms in Australia?
Common terms are 7, 14 or 30 days from invoice, or 30 days from the end of the month in which goods were supplied. Larger suppliers and wholesalers may offer 45 or 60 days to established customers. The government recommends 30-day terms for paying small businesses.
Is trade credit a loan?
Not in the usual sense. No cash changes hands; you receive goods or services and settle later. But it's still debt. It appears in your accounts as trade creditors or accounts payable, and lenders count it when assessing your business.
Why does a supplier credit application ask for a personal guarantee?
When a supplier extends credit to a company, the directors aren't automatically liable. A guarantee makes them personally responsible if the company doesn't pay. Some applications also include a clause charging the guarantor's property, which can allow the supplier to lodge a caveat over their home.
Does paying suppliers late affect my credit?
It can. Some suppliers report payment behaviour to commercial credit bureaus, and serious arrears can end up as a default or court judgment. Lenders also review aged payables and bank statements for signs that suppliers are being stretched.
How do I get better trade credit terms?
Pay on time for six to twelve months, then ask. Suppliers reward reliability with higher limits and longer terms. Consolidating purchases with fewer suppliers also gives you more bargaining power.