Need Net 30 Vendors? Ultimate Guide to Conserving Cash Flow
How Net 30 Terms Can Benefit Your Business
For business owners, using net 30 vendors not only helps conserve cash flow but also builds a company’s credit history. Do you know every vendor relationship you establish can be used as a trade reference on future credit applications? So it is crucial to focus on timely payments as it is essential to building up favorable business credit ratings.
Net 30 is a term that gives a buyer the ability to purchase products and/or services from a seller with full payment of the outstanding invoice expected to be paid within 30 days.
The same thing happens with net 60 and net 90-day terms, but these are not used as often.
There are also vendors that are willing to extend credit to a start-up or existing business with little to no credit history. These types of vendors (starter vendors) are ideal during the beginning stages of the credit building process. However, before applying for credit with starter vendors, it’s important to know what the credit requirements are to avoid getting denied.
Now keep in mind once you open a net 30 business account, you should make regular purchases. Your report needs to reflect payment history since this directly shows that your company can handle its financial obligations on a regular basis. A single purchase will not establish payment history nor will it show that your company can handle ongoing invoices.
It’s important to note that a vendor will only report your account once your company begins paying its invoices due.
Your account will show up on your company credit file based on several factors including invoice due date, reporting cycle, and day of the month.
Not every net 30 vendor reports and not all vendors that do, report on the same day, week, or month for that matter. Each supplier has its own specific day that they batch and submit payment data to a business credit reporting agency.
Also, once payment data is submitted to a credit agency, there is a short delay before it actually populates on your company’s credit report. So don’t expect to see your first payment showing up on your business credit report one or two days after you paid an invoice.
When it comes to maximizing the use of your net 30 vendor lines of credit, there are several key guidelines to take into consideration.
These guidelines include:
- Credit usage –For maximum results, you will need to make regular purchases using your credit line each and every month. It allows you to establish a track record of payment history and usage of credit. The longer the payment history, the greater the impact it has on your business credit scores.
- Credit utilization – The amount of credit you use plays just as an important role as the usage of credit. Making small purchases on a large credit line does not show a potential creditor that your company has the ability to handle large debt loads. However, this doesn’t mean you should max out your credit limit. Instead, keep your credit utilization at no more than 50%.
- Payment history – As you are making regular purchases the invoices you receive will have due dates ranging from net 30 to net 60 days depending on the supplier. Paying ahead of the due date can have a significant impact on your credit ratings. For example, when you make a purchase pay the invoice in full at least 15 to 20 days ahead of the due date. Paying 10-20 days ahead of terms will be looked upon very favorably among prospective lenders.
Your future credit approvals will be based upon many factors including but not limited to your business credit scores, credit limit recommendation, payment history, credit utilization, and credit limit amounts. Net 30 vendors are a great way to begin building credit worthiness for your company but make sure you select suppliers that can provide the products and/or services your business needs.