What is trade credit? A practical guide for wholesale sellers

Trade credit is short-term finance you extend to business customers: they buy now and pay later, on terms you agree in advance. When a retailer orders £4,000 of stock from you on Net 30 terms, you’ve extended them £4,000 of trade credit for 30 days. No bank involved — you are the lender.

How trade credit works

A typical arrangement has three parts:

1. Payment terms — how long the buyer has to pay. Net 30 (30 days from invoice) is the most common; Net 60 and Net 90 appear with larger accounts.
2. A credit limit — the maximum you’re willing to have outstanding with the buyer at any one time. A £10,000 limit means their unpaid invoices should never exceed £10,000.
3. A credit decision — how you decided to trust the buyer in the first place: trade references, filed accounts, a VAT registration check, or a paid first order (proforma) before terms are granted.

Why wholesale runs on it

Business buyers manage cash flow the same way you do. A retailer buying stock for a season wants to sell some of it before paying for it. Offering terms is often the difference between winning a stockist and losing them to a competitor who will. Surveys of B2B trade consistently find the large majority of transactions between businesses happen on credit terms rather than payment up front.

The risk — and the discipline

Trade credit’s cost is carried risk: you’ve shipped goods you haven’t been paid for. The discipline that keeps it safe is unglamorous but simple:

• Check before you trust. Validate the business exists (registration, VAT number), take trade references, and start with a conservative limit.
• Enforce the limit. A limit that isn’t enforced at the point of order is a wish, not a control. If a buyer with £1,450 of headroom places a £2,120 order, something should stop it — automatically, not in a spreadsheet review two weeks later.
• Watch aging. An invoice at 45 days on Net 30 terms is telling you something. Holds and reminders should trigger from the ledger, not memory.

Trade credit on Shopify

Shopify’s native B2B features handle the mechanics of terms — companies, Net 30/60/90 payment terms, B2B checkout. What they don’t do is the trust layer: deciding the limit, and blocking checkout when an order would exceed what’s outstanding. That’s the gap Transactful closes: buyers apply, you approve with a credit limit, and Shopify checkout enforces it on every order — on any Shopify plan.

Want the mechanics in detail? Read how credit enforcement works in the docs, or try the free credit limit calculator.