How Business-to-Business Finance or Trade Credit can Help Your Small Business

The single largest form of lending in the entire world is trade credit, also known as business credit or business-to-business finance. Business-to-business finance is a critical factor for any small business as they establish themselves and build success. Most small businesses are initially financed by the personal savings or assets of the owners and can rapidly reach a stage of growth where they are forced to seek credit or investment solutions to fund their expansion. Our goal at Business Credit Services is to provide small business owners, just like you with the education and tools necessary to build your business credit and turn your small business into the success you have always known it could be.

But what exactly is trade credit and how can you use it for your new business? You might not have known this before but we’re here to tell you that your suppliers can be another source of financing and there a number of pricing and credit options available for you.

Trade credit or business-to-business finance is the general term for a buyer’s purchase of goods from a supplier or seller who finances the purchase by delaying the specific date at which time the price is due or by allowing payments in installments. Many times, suppliers (sellers) are more than willing to sell on credit, and this is perhaps, one of the more popular sources of working capital for businesses that are just starting out and businesses wishing to expand. Typically, vendors know that most new small businesses primarily depend on a very limited number or just a few suppliers. Also, small businesses generally pose small order risks. Just as long as the supplier specifies and controls the credit terms and receivables, most small businesses don’t really pose a threat; in fact they’re good for future business.

Businesses just starting out will benefit greatly if they shop around for potential suppliers as soon as the entrepreneur has formalized a business plan and have selected a location for the site of the company. In many instances, most new businesses utilize one supplier for most of their business needs and can take the opportunity to create a lasting and fruitful business relationship. Then the two businesses can establish a long-term deal when it comes to purchases using business-to-business credit.

The best thing you can do is come up with a general proposal for several possible suppliers. Make sure you outline how much inventory you will need to begin your business and estimate how much you will buy from the supplier in the future. Naturally, you can expect that the supplier will request a priority security interest on all the goods provided to you on credit. In other instances, you might have to personally guarantee some of the purchase price, probably at least for your order for initial inventory. Please keep in mind; the more business you give a potential seller, the better your position for negotiating and setting up additional credit purchases in the future.

Another important factor deals with the management of the amount of trade credit and other debt your new business venture will assume; what’s important is not necessarily the total amount of debt, but rather your company’s ability to make payments from its cash flow. The most important concerns will be the length of the pay period and the amounts of the repayment, in relation to your sources of incoming cash. Make sure you have a solid cash flow history and realistic projections for cash flow because your trade creditors will want to know the facts.

Perhaps the best advantage of business-to-business finance or trade credit is its immediate availability. Furthermore, you have the option of spreading out your payments over time, over the course of several months or even years; and generally little or no down payment or interest charges are assessed.

Some of the many different choices you have include: sales on consignment, delays in payment for purchases and equipment loans. All these options help dealers in the financing of stock purchases. For example, your supplier might arrange some type of promotion plan that gives you the chance to pay for specific items only if they are sold (your supplier retains ownership of the goods until they are paid for). This type of plan allows the supplier to keep tabs on the variety of merchandise in your store and can adjust to any changes in your demand.

Similarly, another inventory financing option for you is buying on consignment which works better for some industries like furniture, electronic consumer goods, and retail print products. When you purchase on consignment, it means that you have to pay the supplier for goods when and only if they are sold. Also, you will retain a small portion of the sale and the balance is returned to the supplier. The good thing is there are no major upfront costs and in the event you don’t sell the product, you just return it to the supplier.

Finally, you need to be aware that the cost of trade credit is generally a higher purchase price. Vendors are just like any other business and deal with the same stress of cash flow concerns and many sellers will offer sizeable discounts for immediate payment. For the most part, by buying on credit, you forego the cash discount price and pay a higher price for your products and goods. Our best advice to you is to take advantage of all your trade credit opportunities and make the best use out of the business-to-business relationships you will establish.

To receive our free booklet, “Building Business Credit for Business Owners,” simply fill out the form below. Our booklet will share with you the basic elements of why thousands of businesses each year work with Business Credit Services to build their business credvit and separate their personal credit from their business’ credit.

You will also learn the first steps you need to go through to separate the business’ credit, how to build a positive business image, and where to start the process of building credit without the use of a personal check or guarantee.

Source: David Gass, President & CEO, Business Credit Services, Inc. Business Credit Services, Inc. specializes in helping businesses build business credit and establish an excellent corporate credit history. Download their free booklet How to Build Business Credit at http://corporatecredit.biz

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