Trade credit is a financial arrangement where a buyer can purchase goods or services from a seller and pay for them later, usually within a specified period. This allows businesses to manage their cash flow more effectively, as they can receive products and start selling them before needing to pay the supplier. Typically, trade credit is extended based on the buyer's creditworthiness and the relationship between the two parties. It is common in business-to-business transactions, helping companies maintain inventory and operations without immediate cash outlay.