What Are The Benefits of Vendors Who Extend Business Credit?

How to put strong working relationships to good use for your business

Any serious business owner is aware that there comes a time when the cash flow in the business declines to a level that cannot allow them to pay for goods supplied by different vendors or even a single vendor. When the business hits such a low, the most appropriate person you can approach for help is your vendor instead of going to the bank for a loan. This is because business loans are expensive to repay compared to trade credit given to the business by the vendor.

Unfortunately, many small business owners are never aware or rather have no information regarding this type of credit. For those that have a clue, the way to approach the vendors who extend business credit proves somehow difficult. As a small entrepreneur, it is first of all good to know how to establish a smooth working relationship with the vendor.

So as to start and maintain a working relationship which is friendly with the vendor, you have to make all your payments on time for goods supplied. Secondly, stick with specific vendors in order to form a nice mutual understanding between the two of you. Thirdly, try and be consistent when it comes to ordering of supplies.

After doing all the above, it is time to ask for a trade credit from your vendor. Many of them will be ready to supply you with goods which you can pay the debt at a later date. Therefore, what are the benefits of obtaining credit from vendors to a small business owner?

Here is a look at the benefits.

1. Conserves Cash Flow

When the vendor supplies you with goods that you can pay for at a later date (net 30 account), it means that you will be able to have a considerable amount of cash to continue running the business. Paying for goods instantly tends to reduce the amount of cash available in the business which at times could deter the normal operation of your company.

Thus, if you can get a vendor who supplies you with goods on credit, it means you have an upper hand when it comes to running your business. This is because the amount of cash you would have used to pay the vendor can be used for other business expenses.

2. Creates Huge Credit Capacity

The good thing about working well with vendors is that it places you in a position to create a good mutual relationship with them on a personal level as compared to banks or any other financial institutions. The vendor therefore will be in a position to understand you better and can even extend trade credit to you without any extra strings attached.

On the other hand, many vendors would also be willing to work with you if only you have a friendly working relationship with one of them. This is because vendors too have networks that connect them together and if your vendor doesn't have the commodities, he may recommend you to another vendor to supply the goods to you.

3. Increases The Value of The Business

If you choose a vendor to supply you with goods on credit terms, it is good to do some background check and determine whether the company reports your credit information to different business credit bureaus.

This is because when you pay them on time and everything is reported to different bureaus, automatically your company's credit score will increase.

When the business credit score increases, the value of the of the business also increases proportionately. This is vital whenever another business owner wants to form a business partnership with you. The value of the business also plays a bigger role when you want to sell it to a different owner.

4. Protection of Personal Credit

As a small business owner, you should work hard to establish a good business scores and stop using personal credit to acquire loans or any other financial help. The best way to start doing so is by forming a good working relationship with vendors. Take the supplies on credit from vendors and ensure that you pay your invoices on or ahead of the due dates.

This will increase your business credit score making it easy for you to use it in future loan applications.

5. Establishes Good Working Relationship With Specific Vendors

If you work with specific vendors who can extend credit to you, then it is good to pay them on time. Doing so will make it easy for you to obtain more credit from other vendors which is one of the vital elements in any business. Creditworthiness allows your company to secure more financing at favorable terms and rates.