Trade credit: how supplier terms work as finance

Trade credit is an arrangement where a supplier delivers goods or services now and lets the buyer pay later, on terms set out in the contract or on the invoice. A wholesaler invoicing a shop on 30-day terms, or a builders' merchant with a trade account settled monthly, is giving trade credit. From the buyer's side, it is finance: the supplier is funding your stock or materials for the length of the credit period.

Unlike a loan, trade credit usually needs no separate application, carries no interest if you pay on time and comes with the purchase itself. The supplier still checks you out first, often with a credit reference, which is why your business credit score matters for trade accounts too.

Our guide to payment terms covers the other side: what to put on your own invoices and the wording to use. In short, it is about the credit you give customers. This page is about the credit you get from suppliers and how to use it as finance.

Trade credit moves the date cash leaves your business. If you buy £10,000 of stock on 60-day terms and sell it within 45 days, your customers' money can pay the supplier and your own cash is never tied up. That gap is part of your working capital cycle: the longer your supplier terms compared with the time customers take to pay you, the less cash you need.

Measuring this is the job of creditor days and debtor days; our guide to debtor days and creditor days shows how to work them out from your accounts.

Some suppliers offer a discount for paying early, such as 2% off if you pay within 10 days instead of 30. Turning that down means paying 2% more to keep the money for another 20 days, which is an expensive way to borrow.

If you can borrow for less than that, taking the discount and funding the payment from an overdraft or revolving credit facility can save money. If you cannot, the extra days of trade credit may be worth the price.

B2B pay later is trade credit provided by a third-party lender instead of the supplier. The supplier is paid straight away; the buyer pays the lender over an agreed period. Some lenders offer it at the supplier's checkout, others directly to the buyer to spread supplier invoices. From their own published terms:

• Funding Circle offers FlexiPay, a revolving credit line of £1,000 to £250,000, letting a business pay in 1, 3, 6, 9 or 12 months.
• iwoca offers iwocaPay, through which a seller's trade customers can spend up to £30,000 and pay over 1, 3 or 12 months, while the seller is paid at checkout.
• Playter offers PlayterPay, where businesses upload supplier invoices and spread payment over 3, 6, 9 or 12 months, with credit of up to £1 million depending on assessment.

Unlike ordinary trade credit, these products usually carry a fee or interest for the longer terms, and a credit check. Compare the cost in pounds with the supplier's own terms and any early-payment discount. Our lender directory lists each provider's published terms. Any application is subject to status and lender criteria.

Paying late turns trade credit into expensive credit and damages the relationship. GOV.UK says that where no payment date is agreed, the law treats a payment as late 30 days after the customer receives the invoice or the goods or service are delivered. Agreed terms between businesses should usually be within 60 days, though longer terms are allowed if they are fair to both.

A supplier can then claim statutory interest, which GOV.UK sets at 8% plus the Bank of England base rate for business-to-business transactions, unless the contract sets a different rate, and the supplier can also claim fixed debt recovery costs. Our guide to late payment interest explains the amounts.

The rules are tightening. The government introduced a bill on 19 May 2026, formally the Commercial Payments Bill and known publicly as the Small Business Protections Bill, that would cap the payment terms large firms can impose on smaller suppliers at 60 days, make late payment interest at 8 percentage points above base rate mandatory, and give the Small Business Commissioner powers to investigate and fine persistent late payers. The government said late payments cost the UK economy £11 billion a year.

• Start small and pay on time. Suppliers often open a new account with a low limit or pro forma terms, then extend credit as you build a record.
• Keep your filings up to date. Suppliers check Companies House and credit reference agencies before opening an account.
• Offer references. Other suppliers who already give you credit are strong evidence.
• Negotiate as you grow. Ask for longer terms or a higher limit once you are a regular, reliable customer.
• Plan payments. Put supplier dates into your cash flow forecast so you are never caught short.

When suppliers will not extend more credit, other finance can bridge the gap: stock finance to buy goods for resale, supply chain finance where a large customer sponsors early payment, or invoice finance on your own sales. For overseas suppliers, a letter of credit can replace trust with a bank's promise.

Capzy is a credit broker, paid by the lender. You can check your eligibility with a soft search that does not affect your credit score, and any offer is subject to status and lender criteria. Capzy does not give financial advice. More options are in our types of finance guides.