[5] Open trade credit is the most common type, typically involving an invoice and a promissory note as primary documentation.
[6] The operator of an ice cream stand may sign a franchising agreement, under which the distributor agrees to provide ice cream stock under the terms "net 60" with a ten percent discount on payment within 30 days, and a 20% discount on payment within 10 days.
If sales are good within the first week, the operator may be able to send a cheque for all or part of the invoice, and make an extra 20% on the ice cream sold.
It is not in their best interests for customers to go out of business from cash flow instabilities, so their financial terms aim to accomplish two things: One alternative to straightforward trade credit is when a supplier offers to give product on consignment to a trader e.g. a gift shop.
A trade credit contract is a legally binding agreement between two parties that allows a buyer to purchase goods or services on account and pay the supplier at a later date[7]