Trade Credit

Abstract

The conflicting needs of seller and end-buyer give rise to a funding gap. This is bridged by the provision of trade credit terms by the seller, by delay in payment by the end-buyer, or by the receipt of finance. The credit exposure and liquidity risk of allowing the end-buyer time to pay are explained and how receivables finance is used to accelerate the receipt of monies to the seller before the invoiced due date for payment. The key client drivers of days sales outstanding (DSO) and days payables outstanding (DPO), which are used to target cash flow management, are described, along with their interpretation and how trade and receivables finance can improve these important ratios for the client, thereby reducing or eliminating risk.