Legal Definitions - sale on credit

A sale on credit refers to a transaction where a buyer receives goods or services immediately, but agrees to pay for them at a future date, rather than at the time of the transaction. In essence, the seller extends a form of short-term financing to the buyer, creating a debt that the buyer is obligated to repay according to agreed-upon terms.

Here are some examples illustrating a sale on credit:

• Example 1: Purchasing Furniture with Store Financing

  Imagine a customer buying a new sofa and dining set from a furniture store. Instead of paying the full amount upfront, the customer opts for the store's financing plan, which allows them to take the furniture home immediately but pay for it in monthly installments over two years. The store charges a small interest rate on the outstanding balance.

  How this illustrates the term: The customer receives the furniture (the "sale") at the time of the transaction, but the payment is deferred and spread out over an extended period (the "credit"). The furniture store is extending credit to the customer, trusting them to fulfill their payment obligations over time.

• Example 2: Business-to-Business Supply Agreement

  A restaurant orders a large quantity of fresh produce from a wholesale supplier. The supplier delivers the produce to the restaurant, along with an invoice stating "Net 30." This means the restaurant has 30 days from the invoice date to pay for the delivered goods.

  How this illustrates the term: The restaurant receives the produce (the "sale") and can begin using it immediately to prepare meals. However, the payment is not due for a month (the "credit"), allowing the restaurant time to generate revenue from the meals sold before paying the supplier.

• Example 3: Receiving Professional Services

  A small business hires an accounting firm to prepare its annual tax returns. The accountants complete the work and submit the finished returns to the business. A week later, the accounting firm sends an invoice for their services, requesting payment within 14 days.

  How this illustrates the term: The small business receives the completed tax preparation services (the "sale" of services) before any payment is made. The accounting firm provides these services on the understanding that payment will be remitted within the specified 14-day period (the "credit").