Boost your small business’ finances and build strong credit. Get trade terms from vendors and suppliers.
Even if business is great, it can sometimes seem like the “exit” door to your bank account is bigger that the entry. Negative cash flow, although it doesn’t necessarily mean you have poor business performance, can crush your company. If there’s not enough cash coming in to cover what’s flowing out, your business’ cash reserve will dwindle and continuing to operate will be difficult.
If cash flow is a problem for you, you may be able to leverage your business relationships to stop serious problems before they start. It all starts with one simple question you can ask your vendors and suppliers: “Do you offer trade terms?”
What Are Terms?
When a vendor or supplier offers terms, trade terms or trade credit to its customers, it’s really offering customers a chance to delay payment for the length of the specified term. In some cases it’ll be a short term (e.g. seven days), but it can be longer (30, 60, 90 days). If a vendor offers you “net-20” terms, it means that you have 20 days before you have to fork over the money you owe for the product or service provided.
In this way, trade credit is actually a form of financing. The supplier is the lender, the customer is the borrower, and the trade terms are the repayment terms specified in the agreement.
Some suppliers or vendors will specify in their agreement a discount for earlier payment. For example, you might have net-30 terms, but if you pay within 10 days you get a 2% discount. On your trade agreement, this will look like: 2/10, n/30
If you can manage to pay early and keep a cushion of cash in your bank account, this is a great way to save some money. Depending on the trade agreement and how often you work with the vendor in question, it may even be worth getting an emergency line of credit or business credit card in order to take advantage of this discount. You’ll pay interest on any funds you use from the line of credit, but the discount may offer more in annual savings than you pay in interest for the line of credit.
How to Take Advantage of Trade Credit in Your Business
Your ability to get trade credit is often closely linked to your business credit scores and reports. Here are a few things you can do to make sure you’re getting the best terms.
- Apply for a DUNS number.
A DUNS number is a unique identifier for your business used by vendors, suppliers and lenders to access information about your company. When you apply for trade terms, your vendor or supplier may want to look up your DUNS number to inquire about your business’ payment history.
Generally, the score they’ll check is your Dun & Bradstreet (D&B) PAYDEX score, which uses your business’ payment history (early, on-time and late payments) to calculate a score for your business. Making sure you have a DUNS number is a crucial first step toward establishing a profile with D&B.
- Ask suppliers if they offer terms and open trade accounts with suppliers that do.
The vendors and suppliers you currently work with may offer terms to customers that ask about them. It’s possible that they’ll start with a short-term arrangement and, if your business pays on time, offer a longer-term one. Don’t be shy about negotiating if you’re a dependable customer!
Some big-name business vendors that might offer terms to your business are Staples, Quill, AutoZone, Comcast, Verizon, Home Depot and UPS.
- Make on-time payments so you are offered even better terms in the future.
Here’s some great news if you make on-time payments on your trade agreements: Accounts with terms are often reported to commercial credit agencies like Dun & Bradstreet. D&B will then take your payment experiences into account when calculating your business credit score.
This is a good way to start building business credit. With strong business credit you’ll put your company on track to qualify for the best terms and to secure financing you may need in the future.