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Trade credit is probably the easiest and most important source of short-term finance available to businesses. A simple definition of trade credit would be an arrangement with its suppliers to buy goods and/or services on account without making immediate cash or cheque payments.

Applying
Trade credit is agreed between businesses. Applying for trade credit requires the business to directly approach the suppliers who are providing goods and services to your business.

Most suppliers will require you to complete a trade credit application form. A trade credit application form would typically require details of the business and its principals, bank details and details of businesses which have previously provided your business with trade credit, for reference purposes.

When first starting out in business, however, suppliers most likely aren't going to offer you trade credit. Ask to deal directly with the owner if it is a small business or the person responsible for agreeing credit in the case of a larger business.  Explain details of your business and show them your business plan.

Maintenance
It is important that trade credit is properly managed and that the agreed terms are adhered too as any delinquent payments can affect your credit rating.

A trade credit arrangement may contain provisions for discount in the event of prompt payment and/or penalties in the event of late payment. Effective use of trade credit requires intelligent planning to avoid unnecessary costs through forfeiture of cash discounts or the incurring of delinquency penalties.  

In addition to trade credit, there are many other sources of finance to explore. From loans and commercial mortgages to cashflow finance and trade solutions, Barclays can help businesses find the right solution to support growth. Follow the link below.

Last updated: 28 Mar 2012