Trade credit is a kind of financing that is normally extended by a product’s manufacturer or seller to another business, which then resells the product. A number of studies have been conducted, and they have discovered that somewhere around 60% of all small businesses engage in this type of short-term financing.
The reason it is so popular is because it does not require any kind of tedious application process, nor does it require a high credit score. However, most new businesses will not be extended the privileges of trade credit until they prove that they pay their bills promptly. Once your company has established a good track record in this area, you will have much less difficulty negotiating trade credit with a number of your regular suppliers.
How to Get Trade Credit
In some cases, the cost of obtaining trade credit can be rather high, and the terms of financing can fluctuate over a broad range. In addition, any suppliers which extend trade credit will normally require late payment penalties when you fail to pay within an agreed-upon time frame. There is no doubt that trade credit can be a boon to a number of businesses that are trying to grow, but it also requires careful monitoring, so that you don’t fall into the trap of constantly paying late fees.
Another way that you can lose the advantage of trade credits is when you fail to capitalize on any cash discounts being offered by suppliers. Whenever a supplier does offer you the possibility of trade credit, it will probably be a huge benefit to your company, but you have to be honest in assessing whether or not you’ll be able to live up to the terms of those trade credit opportunities. If you expect to regularly make late payments and lose out on cash discounts, you will be negating many of the advantages of trade credits. In this case, you might want to consider alternative forms of financing to help your business grow.
Interested in Obtaining Trade Credit?
If your company is interested in obtaining trade credit, we may be able to help. Contact us at DAL Commercial Credit so our financial specialists can work with you to explain the process, and recommend some options.