What Is Trade Credit? Meaning, Examples, and How Exporters Use It
Trade credit is when a seller lets a buyer pay later instead of paying upfront — usually on agreed terms like Net 30, Net 60, or Net 90.
For exporters, trade credit often means shipping first and receiving money later. And once you do that, the real question becomes:
How do you fund the gap safely, without choking your cash flow or taking on buyer default risk?
TL;DR
- Trade credit = “pay later” terms (Net 30/60/90).
- Exporters use trade credit to win orders, but it tightens cash flow and adds non-payment + dispute risk.
- You can convert receivables into cash using export finance tools like pre-shipment credit (packing credit), post-shipment finance (bill discounting), and factoring/forfaiting.
- Faster, clearer payment rails don’t replace financing — but they reduce the friction that makes the cash gap worse.
The exporter reality: “You’re stuck in the middle”
Imagine you’ve landed a bulk order from an international buyer. They ask for 90-day terms.
You ship the goods. Your suppliers want money upfront. Payroll doesn’t wait. But your invoice does.
That gap between shipping and payment can limit how many orders you can take, and turn a “growth” deal into a working-capital problem.
That’s trade credit in real life: simple in theory, stressful in operations.
Trade credit meaning
Trade credit is when a supplier delivers goods/services before getting paid, and the buyer settles later on agreed terms.
- For the buyer, it shows up as accounts payable (money owed).
- For the seller/exporter, it shows up as accounts receivable (money to be collected).
Common terms include:
- Net 30 = payment due in 30 days
- Net 60 = payment due in 60 days
- Net 90 = payment due in 90 days
And sometimes you’ll see early-payment discounts like:
- 2/10 Net 30 = 2% discount if paid in 10 days; otherwise due in 30.
Trade credit examples (exporter scenarios)
Scenario 1: Service exporter / freelancer
A digital marketing agency invoices a US client $10,000 on Net 30. Payment arrives in a month, but payroll is due next week. The work is done — cash isn’t.
Scenario 2: Goods exporter
A garments exporter ships a $50,000 order on Net 60. The buyer pays two months later, but the exporter needs to pay the fabric supplier now to start the next run.
Scenario 3: Marketplace exporter
An India-based seller exports via a marketplace where payouts happen on a cycle (e.g., 14 days after sales). During peak season, that payout lag ties up cash needed for restocking.
What these have in common: you’re profitable on paper, but cash gets trapped in the payment window.
Why exporters offer trade credit (and when it becomes risky)
Exporters offer trade credit because it helps them:
- Win deals against competitors with flexible terms
- Build trust with repeat buyers
- Signal maturity (“we can handle Net terms”)
But trade credit gets risky fast when you don’t plan for:
1) Delayed payment / non-payment
If the buyer misses the deadline, disputes, or disappears, you’ve already shipped and spent the cost.
2) Disputes and deductions
“Damaged goods.” “Short quantity.” “Quality mismatch.” These aren’t rare — and even a partial deduction can wreck your cash forecast.
3) FX movement risk
You invoice in USD today, get paid 60 days later. If INR strengthens in that window, you receive less in rupee terms when converted.
4) Concentration risk
When one buyer funds most of your revenue, one delayed invoice becomes a company-wide cash crunch.
Trade credit vs export credit vs letter of credit (don’t mix these up)
These three sound similar. They aren’t.
Trade credit
A commercial agreement between you and the buyer: ship now, pay later. No bank guarantee. You carry the risk.
Export credit (working capital finance)
Bank financing that helps bridge the export cycle — including pre-shipment and post-shipment finance (and this applies to both goods and eligible service exports).
In RBI’s guidance, packing credit (pre-shipment) can be liquidated using export bill proceeds, effectively converting it into post-shipment credit.
Letter of credit (LC)
A bank-backed payment instrument: the buyer’s bank agrees to pay if you meet documentation conditions. Lower payment risk, but more paperwork and fees.
Simple rule: If you offer Net terms without protection, you’re acting like the lender — unless you use tools that get you paid earlier or reduce default risk.
How exporters fund the trade credit gap (practical playbook)
Option 1: Pre-shipment finance (packing credit)
Use when you need cash before shipping to fund raw materials, production, or purchase.
RBI guidance explicitly covers liquidation/conversion mechanics: packing credit can be liquidated from export bill proceeds, converting it to post-shipment credit.
Option 2: Post-shipment finance (bill purchase / bill discounting)
Use when you’ve shipped and raised the export bill, but you need cash before the buyer pays.
Option 3: Factoring (sell receivables)
You sell invoices to a factor who pays you now and collects from the buyer later (sometimes with credit protection, depending on recourse terms).
Option 4: Forfaiting (larger / longer receivables)
Forfaiting is a trade finance method where exporters sell medium-to-long-term foreign receivables at a discount, often without recourse (meaning the forfaiter takes the non-payment risk).
Option 5: Credit insurance (de-risk open account)
Doesn’t give upfront cash, but protects you if the buyer defaults, especially useful when you’re scaling trade credit to new buyers.
Which should you choose?
- Need cash before shipment → packing credit
- Shipped and waiting → post-shipment finance / bill discounting
- Want to convert invoices to cash → factoring / forfaiting
- Want protection against default → credit insurance
What exporters should check before offering trade credit (quick checklist)
- Buyer creditworthiness Start small with new buyers; ask for references and payment history where possible.
- Terms in writing Due date, currency, late fee, dispute window, and “what counts as delivery.”
- Acceptance + delivery criteria Define exactly when the goods are “accepted” to prevent endless disputes.
- FX clause Decide who bears FX movement between invoice date and payment date.
- Collections timeline What happens on Day 1, Day 7, Day 14, Day 30 after due date?
- Documentation readiness Invoice, shipping docs, proof of delivery, and whatever your bank/financier requires.
Where Skydo fits in an exporter’s working-capital cycle
Trade credit creates the gap: you ship now, get paid later.
Skydo doesn’t provide trade credit or financing. But it targets the friction that makes waiting harder than it needs to be:
1) Less FX opacity
Skydo offers live FX / zero FX margin (so your “expected INR” doesn’t get quietly shaved by spreads you only notice later).
2) Faster settlement (reduces idle time once buyer pays)
Skydo positions fast settlement (often framed as ~24-hour processing in their materials). (This doesn’t shrink the buyer’s Net 60, but it reduces the extra days lost after payment is initiated.)
3) Cleaner compliance workflows
Skydo offers instant and free FIRA from the dashboard as part of the receiving workflow.
4) Trust + security posture
Skydo references ISO 27001 and SOC 2 compliance in its compliance communication.
Bottom line: Trade credit stretches your cash cycle. Financing tools bridge the gap. And your payment setup determines how much extra time, FX leakage, and compliance follow-ups you lose per receipt. Skydo’s value is reducing that avoidable friction once the buyer pays.
