Trade creditor definition
/What is a Trade Creditor?
A trade creditor is a supplier that provides goods and services to its customers on credit terms. A trade creditor typically analyzes the financial statements, credit reports, and payment histories of its customers when deciding how much credit to extend to them. If it no longer chooses to extend credit to a customer, then it is no longer a trade creditor in relation to that specific customer.
Examples of Trade Creditors
Here are several examples of trade creditors, broken down by industry:
Retail trade creditors. Wholesale distributors supplying inventory, and packaging suppliers providing boxes and bags.
Manufacturing trade creditors. Raw material providers, as well as equipment or machinery parts suppliers.
Construction trade creditors. The suppliers of construction materials, as well as contractors and subcontractors.
Food and beverage trade creditors. The suppliers of fresh produce, meats, or beverages.
Healthcare trade creditors. Pharmaceutical companies that supply medicines, as well as medical equipment providers.
Technology trade creditors. The suppliers of computer hardware and software, as well as those providing cloud services.
Presentation of Payables
The amounts owed to a trade creditor are stated on the balance sheet of a customer as a current liability, since these obligations are nearly always due within one year. Conversely, these payables are listed on the balance sheet of the trade creditor as a current asset, and are classified as a trade receivable.
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FAQs
Do Trade Creditors Charge Interest?
Trade creditors usually do not charge formal interest, since the credit they extend is typically short-term and built into normal business transactions. However, they may offer early payment discounts that act as an implicit form of interest if the discount is forgone. In cases of late payment, creditors may impose finance charges or penalties, which function as interest for overdue balances.