What Is a Trade Item?

Malcolm Tatum

A trade item is any type of good or service that can be considered for purchase and ultimately ordered through the process of a supply chain. Items of this type are often evaluated in advance, using information supplied by the manufacturer or retailer, and are then ordered by the customer. Typically, the payment process for a trade item involves the issuance of an invoice that provides the terms of payment, allowing the customer to take possession of the item and pay for it within those terms.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

Evaluating a trade item or items for possible purchase is an important part of the supply chain management process. The evaluation usually begins with utilizing information provided in advance by salespeople or other sources that help supply managers and purchasing agents to determine if the item would in fact provide an effective and cost-efficient means of meeting a current need or want. Part of the process will often require comparing the features of the trade item with similar products available through other sources, and deciding if the item is the best possible purchase in terms of quality and price.

Should the results of the evaluation determine that the trade item is the best possible option, arrangements are made to place an order with the supplier or vendor. With most supply chain strategies, this usually requires the creation of a formal requisition that is forwarded to a purchasing agent, who in turn approves the order and assigns a purchase order number. At that point, the order can be placed with the vendor, with the specification that the purchase order number appear on the final invoice. Once the trade item is received and accepted by the customer, the invoice is scheduled for payment, usually in compliance with both company payables procedures and allowing for the terms associated with the invoice.

In the broadest sense, a trade item is any type of product or service that is offered for sale or trade, even items that are purchased on a cash basis. Using this broad application, this means that even products purchased in an office supply store for use in the business enterprise would be considered a trade item, since the customer presumably compared the product with similar offerings, found the quality and price to be acceptable, and decided to initiate the purchase. This broader definition is common in many areas of the world, and is often used synonymously with the execution of just about any type of sale of a good or service.

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