Supplier credit refers to payment deadlines granted to suppliers. It is the primary form of short-term financing for French enterprises. In 2023, businesses in the country recorded €829 billion in supplier debts on their balance sheets, compared to €319 billion in short-term bank credit. Hundreds of thousands finance one another with no loan contract, interest, or collateral—just payment deadlines.

Yet, this implicit form of financing directly affects liquidity, thereby impacting late payment rates in France. In Q4 2024, fewer than half of French businesses paid suppliers on time. The average delay was 13.6 days. Without these delays, microbusinesses and small and medium-sized enterprises (SMEs) would have €15 billion more in liquidity.

At the same time, any business can be on both the giving and receiving end of supplier credit. Those receiving it benefit from an additional operational resource. It is key to maintain this resource while staying within legal limits. Those extending it are essentially providing a loan that must be paid, tracked, and collected. This article explains what supplier credit is, how it works, why it is important for businesses, disadvantages, and how to manage it.

Key takeaways

• Supplier credit is the payment deadline a supplier grants to a customer. It refers to the period from the delivery of the goods or services and through settlement of the invoice.
  
• In France, supplier credit is strictly regulated by Article L441-10 of the Commercial Code, which caps business-to-business (B2B) deadlines at 60 days or 45 days at the end of the month. The default period is 30 days after receipt unless a specific condition is agreed upon.
  
• Supplier credit offers many advantages to both parties. Customers receive instant financing with no application necessary, freeing up their credit lines. Suppliers gain a powerful strategy to boost sales, increase average cart size, and strengthen retention.
  
• There are some caveats: nonnegotiable legal limits, potential revocation without notice, indirect costs are often underestimated, and risk of dependency on a few major customers.
  
• To manage supplier credit, customers need to calibrate demand for their actual operating cycle, instead of using the legal maximum; clearly state negotiated terms in the contract; address issues with the supplier before the due date; and build a history of on-time payments.
  

What is supplier credit?

Supplier credit is the payment deadline granted by a supplier to a customer. It refers to the time between delivery of the product or service until the invoice is settled. During that interval, the supplier is implicitly financing its customers’ operations without receiving interest. For accounting, supplier credit is entered as a debt on the buyer’s side and a receivable on the seller’s side.

If a business makes a purchase and pays within 60 days, it is receiving supplier credit, which is recorded as a liability on its balance sheet. If it then makes a sale and is paid 45 days later, it is granting the customer credit, which is recorded as an asset on the customer’s balance sheet. The business’s liquidity position is the difference between the credit it extends and receives.

What is the difference between supplier credit and bank loans?

Supplier credit does not require an application, collateral, or interest. It is extended automatically whenever an invoice is not paid in cash. Bank loans require negotiations, contracts, and established interest rates. Supplier credit is limited to 60 days by law and could be revoked without notice. Bank loans have a guaranteed lifespan.

Though supplier credit is not a bank loan, per se, it works the same way. For example, a €30,000 order was delivered on March 5, and the invoice is due on May 4 (60 days later).

• The supplier is advancing the value of the order: It has paid for raw materials, labor, and value-added tax (VAT) ahead of receiving anything.
  
• The customer retains its liquidity for 60 days: It can use, process, and resell the goods before paying for them.
  
• The supplier bears all risk: If the customer goes bankrupt on April 20, the supplier is an unsecured creditor with no guarantees or privilege. Unsecured creditors are typically paid last, after employees, tax authorities, and secured creditors.
  

This is what makes the arrangement a form of short-term credit outside a bank intermediary. National accounts also consider it short-term credit. The European System of Accounts (SEC 2010) categorizes supplier credit as a financial instrument under the heading “Trade credits and advances.”

What are supplier credit regulations in France?

Supplier credit cannot be freely negotiated. Article L441-10 of the Commercial Code limits B2B payments to the next 60 days after the invoice is issued, or to 45 days after the end of the month, if contractually agreed to. If no other agreement is made, the legal deadline is 30 days after receipt.

These timing rules are set forth by the Economy Modernization Law of August 4, 2008. The common law regime provides for three possible payment deadlines:

30 days after receipt (default)

Payment must be made within 30 days unless otherwise stated in the contract, purchase order, or general conditions of sale (CGV). The period begins once the goods are received, or the service is performed, rather than on the invoice issue date.

45 days end of month

This deadline applies when it is expressly stated in the contract and does not unfairly disadvantage the creditor.

It is calculated in an unusual way that takes one of two forms. The first consists of adding 45 days to the invoice issue date, then extending the deadline to the end of that month. The second consists of extending it to month-end before adding 45 days. There can be a difference of up to several weeks across the two calculation methods. The second sometimes results in a payment deadline more than 60 days later. The contract must specify which calculation method will be used. Otherwise, the actual due date will be ambiguous.

There is also a separate provision for invoices for multiple deliveries made within the same period. For them, payment is due within 45 days of the invoice issue date. The period does not extend to the end of the month.

Next 60 days after the invoice issue date

Under common law, the 60-day deadline is the legal limit for B2B invoices.

Late payments are automatically charged penalties and late fees starting the day after the due date.

How does supplier credit work?

Supplier credit begins upon delivery and concludes once the invoice is paid. The supplier delivers goods or services, bills for them, and then waits until the due date agreed to in the contract or CGV. In the meantime, the credit reduces the business’s working capital requirements, while the customer gains an interest-free source of operating funds.

Why is supplier credit important for businesses?

Supplier credit benefits both sides. Customers receive immediate interest-free financing with no collateral requirement, freeing up their credit lines. Suppliers gain a sales strategy that boosts sales and supports retention, as long as they manage the credit correctly.

Here are the benefits of supplier credit:

Advantages for customers

• Offers straightforward access to instant financing
  With supplier credit, no applications, financial analyses, personal collateral from the business owner, or financial ratios are required. It is extended automatically whenever delivery precedes payment. Bank loans require history and collateral. For very small businesses and new SMEs, supplier credit is a precious, instantly accessible resource.

• Preserves liquidity throughout the sales cycle
  Businesses take delivery, process, and resell their goods before making a single payment. Out of annual sales worth €1.2 million, inclusive of tax, 60-day supplier credit represents around €197,000 in reliable funding that requires no formal loans.

• Frees up credit lines for other purposes
  Every euro financed by suppliers avoids a euro of bank credit. It frees up overdraft capabilities and credit lines for investments, hiring, or unexpected issues. This is an indirect benefit, but it makes a difference when negotiating with banks.

• Affects capacity for growth, depending on the business
  Businesses that collect sales proceeds ahead of settling their own purchases fund their operating cycles without dilution or debt. This model is limited to retailers, distributors, and restaurants, where resales occur before supplier payments are due. In the industrial and service sectors, production times and payrolls reduce the portion of the operating cycle covered by supplier credit.

Advantages for suppliers

• Boosts sales
  Offering 45-day terms while a competitor requires cash payments upfront is a competitive advantage, especially for customers with tight cash flow.

• Increases volume and average cart size
  Customers often buy more when they don’t have to pay right away. Granting credit can boost sales.

• Retains customers and builds relationships
  Customer relationships with well-defined payment terms help build long-term relationships that don’t exist with cash payments. Settlement histories can also be used as an indicator of a customer’s financial health. If a buyer typically pays at 45 days but starts paying at 60 or 70 days, this can signal a liquidity issue months before a failure to settle occurs.

• Creates a negotiating tool
  Due-date flexibility supports negotiations over payment discounts, down payments, maximum receivables, exclusivity, or large-volume purchases. It also serves as a business concession, just like a discount.

Note: At the national level, supplier credit helps mitigate the effects of business downturns. Payment deadlines redistribute liquidity along the production chain. Each business captures part of the benefit of the delayed deadline through what it pays to its own suppliers. This helps stabilize subsidiaries if one link in the chain experiences weaker demand.

However, the effect is limited to a difference in timing across multiple suppliers. If a late payment turns into a default, the effect is felt throughout the entire chain rather than being absorbed by it.

What are the disadvantages of supplier credit?

For businesses, there are some disadvantages to supplier credit. It is limited by law, revocable at any time, and unstable during periods of instability. It also finances purchases for a brief period, which could be shortened if the supplier changes its payment terms.

Here are the primary downsides of supplier credit:

• Nonnegotiable legal limits
  By law, payment deadlines are limited to 60 days or 45 days at the end of the month (certain industries allow 20 to 110 days at the end of the month). Businesses could be fined, their violations publicized, and their permitted terms reduced.

• Revocability without notice
  Suppliers might shift to stricter payment terms, require down payments, or accept cash alone. This often occurs if a supplier’s credit insurer has reduced its coverage for that particular customer. The decision might have nothing to do with the business relationship and could arrive just as the buyer is experiencing liquidity issues.

• Underestimated indirect costs
  Suppliers that grant 60-day deadlines are essentially financing the cost of production for two months. That expense might be reflected in their rates and can also affect negotiating positions. Customers that take a long time to pay rarely obtain the best terms. Their requests for discounts or priority delivery might be rejected.

• Effects on profitability
  Fifty-three percent of French businesses say that overly generous payment terms negatively affect profitability. Supplier credit supports customer growth but diminishes a supplier’s liquidity. Depending on a supplier’s financial situation, it could be covering the delay through its own credit lines or equity.

• Risk of dependency
  Concentrating supplier credit among two or three suppliers greatly reduces a customer’s bargaining power. Changing suppliers or rejecting higher rates immediately results in tighter liquidity.

• Less maneuverability
  Late payments arise for multiple reasons, such as lost invoices or ambiguous receipt or deadline dates. Electronic invoices are timestamped, making dates of issue and receipt official. This restricts supplier credit to the contractual terms, removing the extra floating days that many businesses once built into their liquidity plans.

How to manage supplier credit

Customers manage supplier credit by setting deadlines that align with their operating cycles, stating them explicitly in contracts, and paying invoices on time to build trust. If the payment deadlines granted are insufficient, short-term financing solutions offer another option.

• Calibrate demand to the actual operating cycle
  Businesses need to negotiate payment deadlines that span the entire period from receipt of goods to their sale. They don’t necessarily need the maximum periods permitted by law. Any supplier credit extended beyond a customer’s actual needs sits in a checking account, while the supplier finances it from its own resources. Excess credit is also a waste of negotiating capital that could be used to obtain other benefits, such as discounts or shorter delivery times.

• State deadlines clearly in contracts
  The exact deadline, its calculation method, and any down payment requirements must be clearly stated in the supplier’s CGV or in agreed clauses.

• Notify suppliers of issues before the due date
  It is better to agree on an extension, within the limits of the law, than to miss a supplier’s imposed deadline. If a customer is having trouble paying an invoice, arranging installments well before the due date helps maintain a good business relationship. Conversely, a surprise default could result in reduced supplier credit for the customer or demands for upfront settlement.

• Build payment history
  Suppliers extend credit to businesses that they deem reliable. They might choose to revise the payment terms if an incident occurs. A strong history of timely settlements is the best argument in a negotiation. It makes the case for continued supplier credit and helps customers obtain special treatment in the event of occasional difficulties.

• Stay within legal limits
  To avoid legal fines and publication of violations by the General Directorate for Competition Policy, Consumer Affairs and Fraud Control (DGCCRF), businesses must meet the payment deadlines stipulated by law (except in specific sectors).

• Obtain short-term financing
  If supplier credit is insufficient to cover the operating cycle, several other financing options are available. These include bank credit facilities (e.g., overdrafts, credit facilities, seasonal loans), which help cover occasional shortfalls.

Businesses can also use revenue-based financing, in which a lender provides capital and, in return, takes a percentage of the business’s future sales.

How Stripe Capital can help

Stripe Capital offers financing solutions to help your business access the funds it needs to grow.

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FAQs on supplier credit in France