Trade
credit must
be agreed with a supplier and forms a credit
agreement with
them. This source of finance allows a business to obtain raw materials and
stock but pay for them later.
Common
terms and conditions of a credit agreement include:
credit
limit -
the maximum amount of credit available to the business.
credit
period -
the length of time the business has to pay what is owed, usually 30, 60 or 90
days
frequency
of payment -
how often payment is required, usually monthly
method
of payment -
the way in which the business makes payment
retrospective
discount -
a discount given when the business has purchased a certain amount of stock or
raw materials