Trade credit

Customer credit (or intercompany credit) is the period of time a company allows its customers to pay after delivery or service. During this time, the company is effectively financing its customer.

Example

A company sells on 45-day terms. For 45 days, it has delivered goods but has not yet received payment: it is extending credit to its customer.

Why It’s Important

Accounts receivable put a strain on cash flow and create a risk of non-payment. Credit management is used to grant credit wisely and monitor it.

Learn more: Everything you need to know about accounts receivable and the credit management guide.

See also: contractual payment terms, credit limit, customer risk.