Trade credit is the practice of supplying goods and services to a business or individual with an agreed payment at a later date.
Not all businesses use trade credit. Instead, some businesses and sole traders require upfront, cash-on-delivery or even pre-payment for goods and services supplied.
In allowing a delayed payment, also known as “net terms”, businesses are providing their customers with a form of credit financing, in turn also accepting a degree of risk associated with that financing.
In so doing, you might say they are acting like a bank.
The exact nature of B2B trade credit and their specific trade terms varies by industry and also among businesses within those industries.
The very existence of trade credit is a vital component of business and economic activity around the world, but in its current form, it’s fundamentally outdated and inefficient. The duplication of financial services roles and consistent late payments place huge strains on time and business cash flow (not to mention relationships!).
The case for a new trade credit model
The space is ripe for innovation and a more efficient and effective trade credit function would have significant benefits for both individual firms and economies as a whole.
For example, a successful trade credit platform would facilitate low friction payments between buyers and suppliers, should be independent, be fit for purpose, acknowledge the intimate relationship between the parties, simple and easy to register and use, allow buyers the flexibility to control when they pay and must be scalable.
GetCapital built just such a platform – Shift Payments – as a solution to the trade credit problem.
Shift Payments is a flexible trade account that serves both the buyer and supplier and removes the stress of trade terms from the relationship. With Shift Payments, suppliers can get paid immediately and buyer can control payment terms. Supplier receivables are converted to cash in the process, removing accounts receivable from their balance sheet. On the other side of the ledger, buyers control when they pay; allowing both parties to optimise without adversely impacting their relationship.
Shift reduces transactions down to eight clicks and removes the need for businesses to take responsibility for any credit functions (e.g., onboarding, limit setting, funding, credit risk and collections).
To learn more about SME Trade Credit, the case for a new model and how Shift Payments can streamline your payment terms, download the report.