A Guide to Establishing a Trade Credit Policy
- Price: £3.60
- Published: June 2017
- Type: Business Information Factsheet
- Format: PDF
When a business allows a business customer time to pay an invoice, it is offering that business 'credit'. By offering its customers credit, a business, in effect, lends them money until they have settled their bill. A trade credit policy sets out the terms for offering business customers credit and is essential in order to help minimise the risk of late payment or bad debt.
This factsheet explains what a trade credit policy is and what it should include. It defines some frequently used payment terms and provides guidance on evaluating the creditworthiness of business customers. It also covers using credit reference agencies, credit insurance and factoring services.
This factsheet only covers providing credit to business or 'trade' customers. If a business sells to consumers and wants to allow them time to pay, it will need to be authorised or exempted by the Financial Conduct Authority (FCA). See BIF319, A Guide to Consumer Credit Authorisation, for more information.