We often hear that companies selling their products allow their customers to enjoy the goods before the full balance is made. This better explains the definition of trade credit where the customer receives their products and payment is postponed to a later date. According to Murray (2008), it is a term where buyers buy now and pay later. In order to achieve various business objectives, many forms of trade credit are used to obtain the cooperation of businesses to make the use of capital more efficient. Nowadays, people tend to rely more on trade credit rather than loans to finance their business. Peavler (2014) stated that small businesses may only have trade credit as a financing method and research has shown that over 40% of their financing comes from trade credit. Nowadays, most companies providing trade credit are facing lack of cash flow in the environment. Based on a statement made by Selko (2008), the trade credit market is now facing the problem where companies are unable to pay their owed liabilities because there is insufficient cash flow. It is difficult for the company to recover its money when the cash flow is lacking in the environment. The degree of ability to collect the debt would be very low. There are also chances where they are unable to collect the debt. According to Trade Credit Insurance (2014) cash flow problems will cause a severe loss of revenue for most businesses. There would also be currency risk if the currency had fluctuated during the time frame. Credit policies are developed to overcome these problems by providing guidelines for both parties to follow before conducting business. Budde (2013) stated that it is a… mediocre credit policy… an efficient credit policy will lead to a high amount of loans and in cases where full collections are made it will increase the profits of the company. He added that a strict or static credit policy would only minimize costs and losses from bad debt, but could reduce the company's revenue, profitability and cash flow. Furthermore, the company will lose competitive advantage and this will have a huge impact on the company's profitability when it has fewer customers. Therefore, a static credit policy is not suitable for all companies, especially those that are still relatively small. Simply put, credit policies in many ways can help the company to increase its performance. When performance is improved, it will automatically help the company increase its profitability through increasing sales, reducing the amount of bad debts and much more.