What is Corporate Credit?

Malcolm Tatum

Corporate credit is an agreement reached between a corporation and a vendor or lender that allows the corporation to acquire something of value now and pay for the acquisition at a later date. The acquired goods and services may include anything from financial loans to raw materials for production and manufacturing. Corporations often function with the use of corporate credit rather than relying on purchases made on a strictly cash basis.

The credit history of a corporation is taken into account to secure credit.
The credit history of a corporation is taken into account to secure credit.

In the broadest sense, corporate credit is very similar to individual credit. In both instances, lenders and creditors evaluate the overall status of the applicant, and determine if extending credit can take place with a reasonable expectation of repayment. Thus, vendors who sell goods and services that can be utilized by a given business will look at the financial strength of the corporation, the current sales volume, and the general credit rating for the company, and determine if and how much credit to extend.

In like manner, banks and other financial lending institutions will investigate the overall fiscal strength of a company before extending any type of financial loan. Over time, this process may become somewhat streamlined as the corporation builds up a solid credit history with the lending institution. In some cases, the company may be deemed worthy of receiving a line of credit that can be drawn upon at the discretion of the corporation.

In the world of today, just about any business of any size relies on at least some sort of corporate credit in order to function. The credit may be in the form of receiving goods for sale, with payment terms that are thirty to ninety days from the time of receipt. In other situations, the corporate credit may be in the form of revolving credit extended by a vendor that allows the corporation to pay off balances over an extended period of time. As with individual credit, it is important to use corporate credit judiciously in order to constantly enhance the overall credit rating of the company.

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