Most businesses in today's marketplace are in the
unenviable position of having to provide credit to their
customers. This is especially true if you own a small
business that sells to large businesses. Your customers due
to their size and buying ability can put the squeeze on you
just about anytime they want. So you end up extending them
credit. Maybe you give them thirty days to pay you. But I
bet they take sixty days or longer to actually get you a
check. This situation can put a lot of pressure on your
companies finances.
To help alleviate the problem you need to ask your
suppliers for lines of credit too. You can't afford to be
paying for supplies and materials up front when you don't
get paid up front also. An added benefit of this additional
credit is that it's usually interest free. You do have to
keep in mind that some companies can penalize you a small
percentage for paying late but many do not and some will
even offer a discount for paying early.
You'll find that supplier credit lines are integral to
helping improve your cash flow. And as your business grows
your suppliers will be able to develop a deeper
relationship with you. Plus your bank will appreciate you
having those lines of credit. Because if that credit is
available to you then you're less reliant on the bank when
money is tight. To the bank this is a good thing.
So how do we go about establishing these lines of credit?
We ask of course. If you do business with other small
businesses then all you probably have to do is ask for a
credit line. If you've already got a solid relationship
with them then they'll probably be more than willing to
extend credit. Basically a hand shake and a quick letter of
credit that you can show to your bank later if need be. I
really do suggest you make sure to get a letter of credit
for your records even if your supplier never had you fill
out a credit application with them.
Most of your suppliers will provide you with some sort of
basic credit application. If they've got a good
relationship with you this will still only be a formality.
I do suggest you be proactive and put together a basic
company credit reference sheet. It should have information
like the legal name of the business, your employer
identification number, business address and phone numbers,
plus your best credit references on it. Many businesses
will accept this instead of having to fill out a credit
application as it contains most of the information they are
seeking anyway.
If you are applying for credit with a larger company the
application process will be a bit more thorough. Make sure
your credit references are good and you might want to
consider letting them know that you've used them as
references. Larger companies want your business too but are
more wary when extending credit to small companies even if
you have a history with them. Even if you have done alot of
business with them they realize that you had to pay up
front to get what you needed. Their question becomes how
good are you at paying when they've already given you what
you needed?
Bigger companies will usually take longer to do their
credit checks since they have the resources to thoroughly
check into your credit. And they don't just check into your
companies history either. They will usually check into
yours as well. Especially if your company lacks a long
history. Which makes it a good idea from a business
standpoint to know your credit score. You can of course get
your score through companies such as Equifax, Transunion,
and Experian. They'll use these companies and probably get
a Dunn & Bradstreet report to check out your company.
If you do ask for credit from your suppliers you need to
remember that while this is a way to help your cash flow it
can also come back to bite you if you don't pay. Your
suppliers can cut you off. And while this is a chance for
you to grow your relationship with your supplier many
people abuse it instead. You need to pay them on time and
if for some reason that's not possible you need to tell
them when it will be. The key to any good relationship is
communication.
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Cash Miller is an experienced entrepreneur and speaker who
has spent over a decade as a small business owner. His
years of experience in small business covers such topics as
planning, management, marketing, human resources,
ecommerce, and taxation. If you are looking for more
information on this subject and others related to starting
and running a small business you can visit his website at
http://www.SmallBusinessDelivered.com
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