A trade credit is also referred to as trade credit or supplier credit. Especially in the mail order business, the trade credit offers advantages for both parties (buyers and sellers). With a correspondingly positive credit rating, customers in a mail order company have the opportunity to order the goods and pay for them later.
How does the trade credit work?
If a successful contract is concluded, the customer receives the desired goods from the mail order business. In retrospect, the obligation goes to the borrower to pay the agreed installments on time. In this context, there are various financing options for a loan, ranging from monthly installments to a delayed payment or payment break.
The mail order company increases the incentive of an order and the customer can fulfill a request before the full invoice amount is available. Until the repayment of the total invoice amount, the reservation of title remains with the mail order. This means: If the customer does not pay the outstanding invoice in the set time, he is obliged to return the goods in their original condition. In addition, dunning costs and fees would be added that exceed the actual value of the order.
Advantages and risks of commercial credits
Commercial loans have high season just before the holidays. It is worth considering whether it really makes sense to finance a TV or a smartphone over three or more years to benefit from the small installments. Short-term loans and commercial loans over six months appear much more efficient, some of which are offered without interest. Here customers benefit from a convenient payment, without having to accept additional fees. Thus, the repayment of open invoice amounts for the supplier credit is in most cases designed for very short payment terms of up to 90 days.
What are the requirements for a trade credit?
Before confirming the commercial loans, a credit bureau information is provided by a customer. Thus it is possible for a supplier or a mail order company to analyze the payment behavior of a customer objectively and to classify it accordingly. If a mail-order company informs its customer that a trade credit is not possible on the basis of the credit bureau, the collateral will not suffice.
Negative entries on open invoices, parallel loans or small loans as well as payment obligations and credit cards can influence the credit rating. In principle, the refusal protects against potential over-indebtedness. Finally, even a small trade credit should be used wisely and in proportion to revenue and expenditure. Only those who retain a financial buffer as a customer can avoid financial bottlenecks and problems and pay their installments on time.