When you allow a customer time to pay you are offering them credit. If your business sells to other businesses you will find that you have to give credit to your 'trade' customers and allow them some time to pay their invoices.If your business sells to consumers and you want to allow your customers time to pay, you will need a consumer credit licence. This is covered in more detail in BIF 319, An Introduction to Applying for a Consumer Credit Licence.
Allowing a trade customer a period of credit can be a risk as you are, in effect, lending that customer money until they have settled their bill. If a customer delays paying you for the goods or services you have supplied to them this may cost you money, especially if you have to borrow on overdraft to fund your business while waiting for payment. If a customer fails to pay you at all, your business will be faced with a bad debt.
This factsheet looks at what a trade credit policy is and why you need one. It defines some frequently used trade credit terms and provides guidance on how to evaluate business customers for creditworthiness. It also gives hints and tips and sources of further information.
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