Suppliers' Credit in Trade Finance
The overseas seller gives the time, not a bank. Here's what the importer's bank still has to check.
Suppliers' credit is credit given by the seller: the overseas supplier ships the goods and lets the Indian importer pay some months later. No bank lends; the supplier carries the wait and usually builds the cost into the price or charges interest. RBI treats it as one of the two forms of trade credit, the other being buyers' credit.
For the importer's AD bank the questions are practical. Is the deferred period within RBI's trade credit limits? Is any interest within the cost ceiling? Does the credit have to be reported? This page works through those checks on a real-looking import.
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Case: Dyes from Korea for a Surat Processor
A textile processing house in Surat imports reactive dyes from a Korean supplier worth USD 4 lakh. The supplier agrees to 270-day terms from the bill of lading date, at 6% a year interest, documents sent on collection (D/A).
- 1
Is it a trade credit?
Yes. The supplier, located outside India, is extending credit for an import, so it is suppliers' credit under RBI's trade credit framework.
- 2
Is the period allowed?
Dyes are non-capital goods: the limit is one year or the operating cycle, whichever is less, counted from shipment. If the processor's operating cycle is shorter than 270 days, the bank should not accept the full term without a reason.
- 3
Is the cost allowed?
The bank checks that 6% plus any other charges stays within the ceiling: the 6-month USD benchmark plus 300 basis points for a new foreign currency trade credit.
- 4
Reporting
Because the credit runs beyond 180 days, the AD bank includes it in its monthly Form TC return to RBI, due by the 10th of the following month.
- 5
Payment and closure
The bank releases the documents against the processor's acceptance of the bill. On day 270 it remits principal and interest and marks off the IDPMS entry once the payment is made.
Suppliers' Credit vs Buyers' Credit
Who gives the credit
Suppliers' credit
The overseas supplier of the goods
Buyers' credit
A bank, financial institution or foreign equity holder abroad, or a financial institution in an IFSC
When the supplier is paid
Suppliers' credit
Later, on the deferred due date
Buyers' credit
At sight or on the due date, by the lender
Importer's debt is to
Suppliers' credit
The supplier
Buyers' credit
The lender
Period, limits and cost ceiling
Suppliers' credit
RBI trade credit framework
Buyers' credit
Same framework
Typical bank role
Suppliers' credit
Collection or LC, guarantee if the supplier wants one, reporting
Buyers' credit
Arranging the lender, bank guarantee, reporting
| Point | Suppliers' credit | Buyers' credit |
|---|---|---|
| Who gives the credit | The overseas supplier of the goods | A bank, financial institution or foreign equity holder abroad, or a financial institution in an IFSC |
| When the supplier is paid | Later, on the deferred due date | At sight or on the due date, by the lender |
| Importer's debt is to | The supplier | The lender |
| Period, limits and cost ceiling | RBI trade credit framework | Same framework |
| Typical bank role | Collection or LC, guarantee if the supplier wants one, reporting | Arranging the lender, bank guarantee, reporting |
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What Changed on October 1, 2026
The IIBF courseware (2025 edition) predates the current regulations, so it follows the older Master Direction on imports, under which normal import payments had to be made within six months of shipment, and anything longer was a deferred payment arrangement. From October 1, 2026, RBI's Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 replaced that: the AD bank follows up for payment within the period in the underlying contract, and may extend it on the importer's request if satisfied with the reasons. Interest on a delayed import payment cannot exceed the trade credit all-in-cost ceiling.
The same idea runs the other way for exports. When an Indian exporter gives its foreign buyer credit, that is suppliers' credit from the exporter's side, and the export value must still be realised within nine months of shipment (twelve months if invoiced or settled in rupees) unless the AD bank extends it. Project exports are the exception: they follow the payment terms of the contract.
How the IIBF Exam Tests This
Case questions describe deferred terms and ask whether they are allowed, who the lender is, or whether reporting applies. The traps: counting the period from the invoice or acceptance date instead of shipment; treating a 120-day D/A bill as reportable (the reporting line is beyond 180 days); and quoting the old six-month import rule as current. Note IIBF's cut-off date for regulatory changes when you sit.
FAQs
What is suppliers' credit in import finance?expand_more
Deferred payment terms given by the overseas supplier to an Indian importer. RBI treats it as trade credit, within the same period, amount and cost limits as buyers' credit.
Can suppliers' credit for raw materials run for two years?expand_more
No. For non-capital goods the limit is one year or the operating cycle, whichever is less, counted from shipment. Only capital goods, and non-capital imports by shipyards and shipbuilders, can go up to three years.
Does suppliers' credit have to be reported to RBI?expand_more
Suppliers' credit beyond 180 days, up to the maximum trade credit period, is reported by the AD bank in the monthly Form TC return.
Is the six-month rule for import payments still in force?expand_more
Not since October 1, 2026. Import payments now follow the contract period, which the AD bank can extend on request. Older courseware still shows six months.
Next steps
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