The email is always short and always administrative. Following a review of your account, orders will now be on a pro forma basis with immediate effect. No warning, no explanation, and — the part that stings — no obvious person to appeal to. The account manager you have dealt with for six years did not write it and cannot undo it.
What has actually happened is that a source of funding has been withdrawn. Not a loan you applied for, or a facility you negotiated, or anything you ever signed. Trade credit is the finance most small businesses use most heavily and think about least, right up until the morning it stops.
Thirty-day terms are a loan, priced at zero
Put a number on what you were getting. A business buying £18,000 of stock a month on 30-day terms is, at any given moment, running on roughly £18,000 of somebody else's money. It is permanent working capital. It does not appear on any facility agreement, it costs nothing, and because it has always been there it feels like part of the furniture rather than part of the balance sheet.
Move to pro forma and you do not lose £18,000. You have to find £18,000 now, on top of this month's buying, because you are paying for the next order before the last one has been sold. It is a one-off working capital hit roughly equal to a month's purchases, and it arrives in the week you were least ready for it.
The comparison worth making is what replacing it costs. An £18,000 overdraft or short-term facility to plug the same hole is not free — at 10% to 12% you are looking at somewhere around £150 to £180 a month for headroom you previously had for nothing, assuming you can arrange it at all in the fortnight you have. That is the real price of the email.
Trade credit is the largest source of finance most small businesses use, and the only one they never signed for.
It usually is not your supplier's decision
This is the part that changes how you respond. Most suppliers of any size insure their receivables. A trade credit insurer sets a limit for each customer, and the supplier extends terms up to that limit. When the insurer cuts or removes the limit, the supplier's choice is to keep selling to you uninsured — carrying the whole risk on their own balance sheet — or to ask for the money up front.
Most credit control departments have no discretion to do the first. So arguing with your account manager rarely works, and the decision often has nothing to do with your relationship, your order history or whether you have ever paid a day late.
It also means the trigger is frequently something you would never connect to your stock account.
What actually pulls a limit
Filed accounts arriving late, or arriving so thin that the scoring model has nothing to work with. This is the most common and most fixable cause, and it is the same mechanism that decides what a lender sees in your business credit score and, in the worst case, why a loan application fails on the strength of how you filed.
A county court judgment, including one registered against a business with a similar name, or one you did not know about because it went to an old registered office address.
Payment performance. Some suppliers share payment data with credit reference agencies, so a habit of paying at 45 days on 30-day terms is visible to businesses you have never traded with.
Sector-level caution, where an insurer takes a view on an entire industry after a run of losses and adjusts every limit in it. Nothing you did, nothing you can fix.
And, ironically, growth. A sharp increase in your order size relative to trading history reads to a model as increased exposure, not increased success.
The first week, in order
Ask, politely and specifically, whether the decision was the supplier's or their credit insurer's, and if it was the insurer, which one. This single question is the one most people never ask. A credit insurer will look at information — management accounts, an order book, an explanation of the numbers behind a bad year — where the supplier's credit control simply cannot.
Pull your own credit file from the agencies directly and read it. Errors are common: wrong SIC codes, stale director records, judgments belonging to somebody else. Getting a mistake corrected is unglamorous and occasionally transformative.
Then offer something smaller instead of arguing for what you had. Half the old limit. Terms on part of the order with the balance paid up front. A standing order that clears the account weekly. Suppliers often have discretion to approve a reduced uninsured limit out of their own pocket when they cannot get the insured one reinstated, and a specific modest proposal is much easier to say yes to than a request to go back to how things were.
After that, it is time. Pay everything on the day for two quarters and file your accounts early rather than on time. Both are visible to the people making the decision, and neither costs anything.
The other side of the same coin
If it is your business extending the terms, the arithmetic runs in reverse — and there is a lever most owners never pick up. On late commercial payments you are entitled to statutory interest of 8% above the Bank of England base rate, which with base at 3.75% means 11.75%, plus a fixed sum for debt recovery costs: £40 on debts under £1,000, £70 between £1,000 and £9,999.99, and £100 on £10,000 or more. If no payment date was agreed, payment is late 30 days after the customer receives the invoice or the goods, whichever is later.
You will not invoke it against a good customer. But knowing it exists changes how you carry yourself in the conversation, which is half of chasing late invoices without losing the client.
The lesson worth keeping
Treat trade credit as what it is: a facility, with a limit, that somebody else can withdraw. That means never letting one supplier hold your entire supply chain, and knowing — actually knowing, as a number — what one month of purchases costs in cash.
If the honest answer to that is "I would have to work it out", that is the thing to work out this week. Not because your terms are about to go, but because the morning they do is a bad morning to be finding out. It is the same discipline as understanding what a lender asks for before approving a loan: the time to be ready is well before you need to be.
Common questions
Why has my supplier suddenly asked for payment in advance?
Usually because a trade credit insurer has cut or removed the limit it will insure on your account, not because the supplier has decided you are a bad customer. Most suppliers of any size insure their receivables and extend terms only up to the insured limit, so when the limit goes the supplier either sells to you uninsured at its own risk or asks for payment up front. Common triggers include accounts filed late or filed thin, a county court judgment, deteriorating payment performance reported by other suppliers, insurer caution about your whole sector, and — counterintuitively — a sharp increase in your order size.
What is trade credit insurance and how does it affect my account?
Trade credit insurance protects a supplier against customers who do not pay. The insurer assesses each customer and sets a limit it is prepared to cover, and the supplier generally extends terms up to that figure. The practical consequence for you is that the person deciding your terms is not the person you deal with. Your account manager may know nothing about the review and have no power to reverse it, which is why appealing on the strength of a long relationship rarely works. Asking which insurer set the limit is more productive, because insurers will consider information such as management accounts.
Can I get my supplier's credit terms reinstated?
Sometimes, but rarely by asking for the old limit back. Start by establishing whether the decision was the supplier's or their credit insurer's. If it was the insurer, approach them with real information — recent management accounts, an order book, an explanation of any bad year in the filed figures. Separately, check your own credit file for errors and get them corrected. Then propose something smaller and specific: half the previous limit, terms on part of an order with the rest prepaid, or weekly settlement. Suppliers often have discretion to approve a reduced uninsured limit even when the insured one cannot be restored.
Does paying suppliers late affect my business credit score?
It can. Some suppliers share payment performance data with credit reference agencies, so consistently paying at 45 days on 30-day terms can be visible to businesses you have never traded with, and it feeds the scores that credit insurers and lenders use. Filed accounts matter more for most small companies — late filing sits on the public record permanently and is treated as a distress signal — but payment behaviour is the input you control day to day. If you are being squeezed at both ends, prioritise the suppliers whose terms you cannot afford to lose, and talk to the others before the due date rather than after.
