Small Business Tips: Trade Credit and Why It Is Important


Small business tips won’t help you if you don’t have trade credit. Most small business owners will find themselves starving for cash at one point. They might find themselves in the red midstride, or they might see it looming during a planning session – what won’t change is that it will come. This is where and when trade credit comes into the picture.

What is Trade Credit?

Trade credit – or vendor financing – is when a company is allowed to purchase goods on credit from another business. It’s convenient for a number of reasons, the first and foremost being that the company purchasing the goods doesn’t have to go looking for an investor anymore. It essentially cuts out the middleman.

The Benefits of Trade Credit

As mentioned, it cuts out the middleman in terms of cash. There’s no need to go to a bank or a rich friend who likes investing. There’s no need to put more of your own money into it. It makes the transaction safer on a number of levels.

More importantly, it also starts out your business on the road to a healthy credit rating. This improves your odds of getting a loan for things that cannot be handled by trade credit, such as personnel. This frees up your funds for other important things as well.

Where to Begin?

It is simple – once the foundation of your business is set up, talk to local suppliers and find out who is willing to engage in trade credit with your business. This is going to require some work, especially if you are entirely new to the business scene and have nothing to leverage in terms of credibility and credit – but it needs to be done.

Ask each and every supplier if they are willing to offer business on account or credit. The good news is that this is more common than you think. First of all, it benefits the supplier because it puts their name out there. It also produces more sales, if whoever they’re lending their supplies to pays it back.

More often than not, they’ll offer a deal involving quick payment, such as a discount on future transactions with them. For example, if you pay back your debt within ten days of a twenty day contract, you might get the said discount.

Why You Should Start Now

The sooner you start, the sooner you’ll start building up credit among various suppliers. You’ll likely have to go to more than one to get everything that you need. This means that you can get your business up and running faster, which means that you can get bigger faster, which means more returns and profit for you. Just remember to always make your payments.

Trade credit might seem scary, as all forms of credit might, but if you’re a small business without a steady revenue stream you might not have a choice. As far as situations where you don’t have a choice go, it’s a fairly beneficial one. The supplier wins, you win, and your business wins.

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