Most established companies get payment terms from suppliers. This arrangement means they can buy goods or services while paying for them on net-30 terms. Clients demand terms from suppliers because it improves their cash flow. They get to use the supplier’s services or products for a few week before paying for them.
Many small busies sowers cannot get credit from their suppliers. They are too small, or they do not qualify. Instead, they have to pay when they get the invoice or pay in advance which is much worse. This puts them at a financial disadvantage with their competitors.
Your clients will demand net-30 terms
Your clients still demand net-30 to net-60 day terms from your company. You need to pay your suppliers quickly, but your own clients pay you slowly. This scenario often leads to cash flow problems. To avoid many of these financial problems by getting credit terms from your suppliers.
Who should get net-30 terms?
Suppliers use numerous tools to determine if your company deserves credit. The most common way to check the credit of your company is to use a credit report. Vendors purchase these reports from companies such as Dun and Bradstreet or Experian. These reports include credit information, are inexpensive and easy to use.
The best way to get credit is to improve your commercial credit report. This process is easy but requires determination. It is worth the effort though. A supplier who gives you credit is effectively financing your business for free.
How to get supplier credit
The best way to improve or build your company’s commercial credit is to become a good-paying client. However, there is a way of doing this that improves your credit quickly and effectively.
Step 1: Work with suppliers who report credit
Some suppliers report credit information to the bureaus, while others do not. This distinction is important. Work with suppliers who report their payment experience to credit bureaus when possible.
There is no way of telling which companies report information and which do not. Your best bet is to ask their accounts payable department.
Step 2: Ask for a little credit
Most businesses make the mistake of asking for net-30 terms immediately and giving up when the supplier says no. If the supplier is unwilling to provide net-30 terms, ask if they can provide net-5 or net-10 terms. Some credit is enough to get this process started.
A common mistake small business owner make is demanding credit and getting upset if they do not get. Instead, ask the representative politely and you just might get your credit established.
Step 3: Pay early
To build commercial credit, you need to manage payments carefully. If the supplier reports credit information, pay early every time. If the supplier does not report credit but you want their terms, pay early when you can. If the supplier does not report credit, pay them on time. The point is to never pay late. Late payments will disrupt the process and damage your supplier credit.
Ask for an increase and repeat
When you have built a good track record of early payment (ideally a few months), call your supplier to negotiate better terms. Try to get a longer payment time, a larger credit limit, or both.
What to do if you need supplier credit right away
Building credit and getting terms from suppliers can take months. This delay presents difficulties if you have cash flow problems now and need working capital. One way to handle this issue is to use small business financing. This solution bridges the gap in your cash flow and helps you grow.
A common source of financial problems is that suppliers want quick payments while clients want to pay slowly. You can improve this by factoring your invoices. Instead of waiting 30 to 60 days to get paid by clients, you get an immediate advance from the factor. This will give you the money you need to pay suppliers and manage your business.