Accounting glossary term
Trade Credit
Trade credit is supplier financing: the customer receives goods or services now and settles weeks or months later. It is one of the most common short-term funding sources in day-to-day trade.
What is Trade Credit?
Trade credit is supplier financing: the customer receives goods or services now and settles weeks or months later. It is one of the most common short-term funding sources in day-to-day trade.
How It Works
- Record relevant transactions in the general ledger with proper classification.
- Monitor key indicators on a monthly or quarterly basis.
- Report progress and variances to management and the board.
- Adjust strategy and operations based on the data.
Saudi Context
Under Saudi accounting practice, Trade Credit is reported in line with IFRS as adopted by SOCPA. ZATCA-registered companies must keep supporting documentation and reflect Trade Credit consistently in their VAT returns, zakat declarations, and Annual Financial Statements. Saudi Vision 2030 compliance and CMA disclosure rules add further reporting layers for listed firms.
Example
A Riyadh-based trading company applies Trade Credit in its month-end close. The accounting team computes the figure using actual transactional data from ASAPI, compares it against the prior period and budget, and includes a narrative in the monthly management report so leadership can act on the result.
Related Terms
- Working Capital