Types of Credit

Commercial Credit

Commercial credit is credit extended by a manufacturer or supplier when selling goods to a buyer for use in manufacturing or for resale for profit.

Consumer Credit

Consumer credit involves credit extended to an individual or a family enabling them to obtain goods, services, or money for personal, family or household purposes.

Bank Credit

The most apparent difference between bank and business credit is the type of resource that changes hands in a transaction. A bank furnishes money, while a business supplier furnishes goods or services. Another significant difference is that bank credit extensions tend to be for longer periods of time, and banks charge interest on outstanding debt. The final significant difference is the fact that banks tend to be secured creditors, while trade creditors tend to be general unsecured credits. However, banks and trade creditors end up looking to customers for payment in cash. The bank does not want to foreclose on the debtor's assets just as trade creditors do not want their merchandise returned to them.

Reprinted with the permission of Credit Research Foundation.

Edited by Michael Dennis, author of "Credit and Collection Handbook" available at the NACM Bookstore.