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Trade credit and supplier terms.
The cheapest finance most companies use is the one they rarely think of as finance at all: the time a supplier gives you to pay. This guide explains how trade credit works, how to negotiate terms, what an early-settlement discount really costs, and where a short company bridge complements supplier terms rather than replacing them.
Trade credit is finance you already use
When a supplier invoices on terms, they are lending you the value of the goods for the length of those terms — usually at no charge.
Trade credit is the gap between receiving goods or services and paying for them. A supplier who invoices on 30-day terms has, in effect, lent your company the value of that invoice for 30 days. No interest, no fee, no agreement to sign beyond the purchase order itself. For most incorporated businesses it is by some distance the largest single source of short-term funding on the balance sheet, and it costs nothing while the terms are honoured.
That is why supplier terms deserve to be managed as deliberately as any borrowing facility. Every extra day of agreed terms is a day your suppliers fund your operation rather than your bank. In the language of the cash conversion cycle, supplier terms are the payables-days term — the one part of the cycle that frees cash rather than tying it up. Lengthen it, within what is agreed, and the working-capital gap narrows.
How supplier terms are written
A handful of conventions cover most invoices. Knowing what each one means is the first step to negotiating it.
| Term | What it means | Effect on your cash |
|---|---|---|
| Payment on delivery | The invoice is due when the goods arrive. | No trade credit at all — your cash leaves immediately. |
| Net 30 / Net 60 | The full amount is due 30 or 60 days after the invoice date. | The supplier funds you for that window at no charge. |
| End of month (EOM) | Due a set number of days after the month-end in which you were invoiced. | Bills bunch to one date; can lengthen credit on early-month purchases. |
| 2/10 net 30 | A 2% discount if paid within 10 days; otherwise the full amount at 30 days. | A choice between a discount for paying early and keeping the cash longer. |
The first thing to establish on any new supplier relationship is simply which of these applies. New companies are often quoted payment-on-delivery or pro-forma terms until a track record exists — a point covered in borrowing as a new company. Earning standard terms is itself a form of credit-building.
What an early-settlement discount really costs
A discount for paying early looks like free money. Turn it round, and it is the price of the credit you give up.
Take the common "2/10 net 30": a 2% discount for paying at day 10 instead of day 30. Pass up the discount and you keep the cash for 20 extra days, but you pay 2% more for the privilege. Annualise that and the implied rate is high — roughly 2% over 20 days, which scales to a figure well into the tens of percent across a year. Read the other way, taking the discount is one of the better uses of spare cash a company has, because the return is fixed and certain.
The decision is not automatic, though. Taking every discount only makes sense if the company has the cash to settle early without creating a shortfall elsewhere. The illustrative figures below show the trade-off both ways.
| Decision | On a £5,000 bill | What you gain | What you give up |
|---|---|---|---|
| Take 2/10 | Pay £4,900 at day 10 | £100 saved | 20 days of held cash |
| Pay net 30 | Pay £5,000 at day 30 | 20 days of held cash | £100 discount |
Illustrative figures on a single £5,000 invoice under 2/10 net 30 terms. The right answer depends on whether the company can settle early without opening a gap somewhere else.
Negotiating better terms
Terms are quoted, not fixed in law. A supplier who values the relationship will often move — if you ask in the right way.
- Build a payment record first. The strongest argument for longer terms is a history of paying the existing ones on time. Pay reliably for a few cycles, then ask.
- Trade volume for time. A supplier may grant net 60 in exchange for a larger or committed order. The extra credit is the price of your custom.
- Ask for the terms, not just the price. Negotiations fixate on unit price. A longer payment window can be worth more to cash flow than a small discount, and is often easier for the supplier to grant.
- Keep it documented. Agree the new terms in writing so both sides hold the same record. Stretching beyond agreed terms is a different thing entirely — it damages the relationship and your standing, as set out in building business creditworthiness.
There is a hard line between negotiating longer terms and simply paying late. The first is good cash management. The second shows up on your trade-payment record, can trigger statutory interest under the Late Payment of Commercial Debts Act when a counterparty does it to you, and erodes the goodwill that earned you terms in the first place.
Where a short bridge complements supplier terms
Trade credit is the first line of finance. A short bridge is for the moments it does not stretch far enough.
Supplier terms are powerful, but they are not infinite. A supplier window of 30 days does not help if a confirmed customer pays on day 50, and it does nothing for a supplier who insists on payment up front. When the timing gap runs past what trade credit covers — and there is identifiable money arriving to close it — a small, fixed-term bridge fills the difference without straining the supplier relationship.
That is the shape the Creditcorp Business Bridging Loan is built for: £50–£500 over 14–84 days, priced at 0.25% per day on the outstanding principal, with a one-off £5 establishment fee and the total cost capped at 100% of the principal. The company is the borrower, with no personal guarantee. You bridge the gap supplier terms leave open, pay the supplier on time, and repay the bridge when the receivable lands. Two further routes sit alongside it:
| Situation | What fits |
|---|---|
| A confirmed sum, a known repayment date | A Business Bridging Loan — a single fixed-term advance. |
| A recurring rise and fall in the gap | A revolving facility such as Creditcorp Flex — draw, repay, redraw. |
| One specific supplier bill to spread | Creditcorp Slice — the supplier is paid today; you repay over a short plan. |
Note that Creditcorp Slice and ordinary trade credit point the same way — both let you pay a supplier over time — but Slice settles the supplier in full today for a flat fee, where trade credit is the free window the supplier grants directly. Matching the shape of finance to the shape of the need is the subject of choosing the right business finance.
A free line of credit, with limits
Trade credit is cheap because it is unfunded goodwill. Treat it that way and it stays available.
The reason supplier terms cost nothing is that they rest on trust, not on a priced facility. A supplier extends credit because they expect to be paid on the agreed day, and they price that expectation into a relationship rather than an interest charge. Abuse it — by stretching unilaterally, paying late, or disputing invoices to delay them — and the terms tighten or vanish, often without warning. The most valuable thing a company can do with trade credit is protect it.
Because the company is the borrower whenever it draws a Creditcorp product alongside its supplier terms, this is body-corporate credit and sits outside the FCA consumer-credit regime — see lending and regulation. Neither trade credit nor a short bridge fixes a permanent, structural shortfall: that is a profitability question, and borrowing only postpones it. The honest test for when borrowing is the wrong answer is set out in avoiding over-borrowing.
Where to go next
- Working-capital gap calculator — size the gap supplier terms leave open.
- The cash conversion cycle — where payables days fit the wider cycle.
- Choosing the right business finance and building business creditworthiness.
- The Business Bridging Loan, Flex and Slice, and the glossary.