Trade credit covers the gap between cash going out and cash coming in. An importer may pay a supplier before the goods ship, let alone sell. An exporter may buy materials, manufacture and pay for freight before the customer pays. A profitable trade can still leave the business short of cash.
The term has two meanings. Narrowly, it is supplier credit: a supplier lets a customer buy now and pay later, typically on 30, 60 or 90 days. More broadly, it covers the finance facilities that fund a trade from order to collection. The shared purpose is working capital to complete a trade without using all available cash.
A facility should be judged by what it enables commercially. It should support a profitable trade, not cover for a weak business model.
| Facility | What it funds | Typical use |
|---|---|---|
| Supplier credit | Goods supplied before payment | Importer on 30 to 90-day terms from its supplier |
| Import or purchase-order finance | Supplier payments and stock | Importer that must pay before selling |
| Pre-shipment or export working capital | Production and fulfilment | Exporter that needs cash before shipping |
| Invoice or receivables finance | Cash tied up in unpaid invoices | Exporter or wholesaler selling on credit |
| Supply chain finance | Early payment of a supplier's approved invoices | Large buyer supporting its suppliers |
| Letter of credit or documentary collection | Payment assurance against documents | New relationships or higher-risk markets |
| Export credit insurance | Cover against the buyer not paying | Exporter offering open-account terms |
These products address different stages of the cash cycle and are not interchangeable. The first step is to find where the cash is trapped: in stock before sale, in goods at sea, or in invoices waiting 90 days to be paid.
Supplier credit is short-term finance inside the commercial relationship. It is often the cheapest option when available, but it may be short, unavailable to newer buyers, or built into the price.
Manufacturers rarely give generous terms to a new buyer or for made-to-order goods. A typical first arrangement is a deposit when production starts and the balance before shipment. Terms usually lengthen once the buyer has a payment record, which makes paying on time a commercial asset.
For UK-to-UK supply, the Late Payment of Commercial Debts (Interest) Act 1998 lets a supplier charge statutory interest at 8% above the Bank of England base rate on late payment, and the Commercial Payments Bill now before Parliament would cap business payment terms at 60 days. The bill would not apply to international transactions, where terms remain a matter of negotiation.
Importers often pay before they earn. The cash cycle runs from the deposit, through production, shipment and customs clearance, to sale and the customer's payment.
| Illustration: £400,000 import order | Cash position |
|---|---|
| Day 0: 30% deposit at order | £120,000 out |
| Day 45: 70% balance before shipment | £400,000 out in total |
| Day 80: goods cleared and in the warehouse | Nothing yet received |
| Day 110 onward: goods sold on 30-day customer terms | Cash returns from about day 140 |
Import or purchase-order finance can fund the deposit and balance, allowing larger purchases, better supplier prices for bigger orders, or stock for a new market. Size the facility from the full landed cost, meaning goods, freight, insurance and duty, the gross margin, the expected sale period and the repayment date. Financing slow-moving stock creates repayment pressure, so match the facility term to realistic sell-through.
The payment side of the same cycle is covered in the guide on how UK importers pay overseas suppliers.
Exporters face materials, labour, packaging, certification, freight and insurance costs before the customer pays. Larger contracts raise the working-capital need just as the business grows.
Pre-shipment finance funds production without depleting operating cash. After shipment, receivables finance releases cash against the invoice, and export credit insurance covers the buyer not paying. Watch the customer's payment record and the country, and align the facility with the transaction.
Where the customer pays matters too: the guide on how UK exporters receive international payments covers collection routes and terms.
UK Export Finance, the government's export credit agency, shares risk with banks so they can lend to exporters they might otherwise turn down, or lend more.
| UKEF product | Cover | What it supports |
|---|---|---|
| Export Working Capital Scheme | Up to 80% of the credit risk | Pre- and post-shipment working capital for a specific export contract |
| General Export Facility | Up to 80% of the facility | Trade loans, working capital, bonds and letter of credit lines, typically up to £25 million, without a specific contract |
| Bond Support Scheme | Up to 80% of the bond's value | Bid, advance payment, performance, retention and warranty bonds |
| Export Insurance Policy | Up to 95% of the contract's value | Protection against the buyer not paying |
The exporter must carry on business in the UK and have, or plan to have, a contract with a buyer outside the UK. For the General Export Facility, at least 20% of annual turnover must have come from exports in any one of the last three financial years, or at least 5% in each of them, and repayment terms run up to five years. Applications go through the exporter's bank, and participating banks can provide the guarantee automatically when criteria are met.
A letter of credit is the buyer's bank's undertaking to pay the seller once specified documents are presented in line with its terms, usually under the International Chamber of Commerce's UCP 600 rules. It reduces counterparty risk for both sides: the seller relies on the bank's promise, and the buyer pays only against documents showing the goods were shipped as agreed.
It is not ordinary working-capital credit, though a bank may combine it with finance, and it requires document discipline, because a discrepancy can delay payment. A documentary collection is lighter: the banks hand over the shipping documents only when the buyer pays or accepts a bill of exchange, a written promise to pay on a set date.
Since 20 September 2023, the Electronic Trade Documents Act 2023 has given electronic bills of lading, bills of exchange, warehouse receipts and similar documents the same legal effect as paper. Banks and carriers that use electronic documents can shorten the time between shipment and payment.
Invoice finance releases cash against unpaid customer invoices. In factoring, the lender buys the invoices and usually collects from the customer; in invoice discounting, the business keeps collecting and the arrangement is often confidential. The amount advanced is a percentage of the invoice value set by the lender, with the balance paid, less fees, when the customer settles.
Supply chain finance, sometimes called reverse factoring, is arranged by a large buyer. A funder pays the supplier's approved invoice early and the buyer repays the funder on the original due date. The supplier gets cash sooner at a cost based on the buyer's credit standing, which is usually stronger than its own.
Credit insurance pays out if an insured customer does not pay, through insolvency or prolonged default, and in export policies often for political events that stop payment. It lets an exporter or wholesaler offer open-account terms with more confidence, and lenders often advance more against insured invoices. UKEF's Export Insurance Policy covers up to 95% of a contract's value where private insurers do not.
| Trade | Typical structure |
|---|---|
| Importer buying stock from Asia for UK resale | Deposit and balance funded by import finance; invoice finance on UK sales |
| Manufacturer exporting under a large contract | UKEF-backed working capital, advance payment bond, credit insurance |
| Wholesaler selling to large retailers on 60 days | Invoice finance or the retailer's supply chain finance programme |
| First high-value order with a new overseas supplier | Letter of credit from the importer's bank |
| Exporter entering a higher-risk market | Deposit plus confirmed letter of credit or export insurance |
Which bank or provider offers each facility is set out in the comparison of business bank accounts for importers and exporters.
Lenders assess both the business and the transaction.
Be ready to explain exactly what the finance pays for and where repayment comes from. A clear file shortens credit decisions.
Model the cash need, gross margin, time to sale or payment, and repayment schedule, and leave headroom for delays at port or slow sell-through.
| Illustration with assumed figures | Amount |
|---|---|
| Finance drawn for the £280,000 balance payment | £280,000 |
| Assumed finance cost of 1% a month for three months | £8,400 |
| Gross margin on the order if goods sell for £560,000 | £160,000 |
The test is whether the trade remains attractive after the full finance cost, including under a slower scenario. Repeatedly needing finance for low-margin or loss-making activity points to a commercial issue that finance will not fix.
Entering a market may require stock upfront, longer delivery times, new logistics costs or longer customer terms. Finance can fund that without draining reserves.
Stage the expansion. Assess demand, counterparty quality, currency exposure and the time to turn stock or invoices into cash. Finance should support a validated opportunity, not replace the validation.
Helm, the firm's own business account and payments platform, runs a trader's collection and supplier payout accounts through licensed partners, with invoices, bills of lading and customs documents attached to each payment. That record is the evidence lenders ask for. Helm offers trade finance. The trade payments service explains how accounts, payments and finance introductions are arranged.
Credit that funds supplier payments and stock before the goods sell, either as supplier payment terms or as import or purchase-order finance from a lender.
Funding for production, stock, logistics or fulfilment before the overseas customer pays, through pre-shipment finance, receivables finance or supplier terms.
UKEF guarantees up to 80% of a bank's export working capital facility or contract bonds and insures up to 95% of a contract's value against non-payment, so banks can lend more.
No. It is a bank's undertaking to pay the seller once compliant documents are presented. A bank may combine it with finance, but the letter of credit itself is payment assurance.
Financial statements, trading history, existing borrowing, details of customers and suppliers, and evidence of the transaction such as purchase orders, invoices and shipping documents.
Yes. The Electronic Trade Documents Act 2023, in force since 20 September 2023, gives qualifying electronic trade documents the same effect as paper ones.
Buckingham Capital Consulting has obtained FCA payment and e-money authorisations for firms including Global Send, Dzing Finance and HFS since 2013, and arranges the banking and operating accounts those firms and their trading customers depend on. For importers and exporters it sets up trade payment accounts through licensed partners and offers trade finance.
Speak to an expert: WhatsApp +44 7563 115980, Telegram @buckinghamcapital or info@buckinghamcapitalconsulting.co.uk.
This article is general information, reviewed against the regulator’s published requirements on the date shown. It is not legal advice; the regulator’s current publications take precedence.