Nevertheless, businesses have access to five types of Business credit. The first type is your bank credit line backed by business or personal assets and personal guarantees. Non-asset based like credit cards used by many small businesses and start-ups is the second one. As fro the third type, it is trade credit, like vendor-supplied, unsecured lines of credit for purchases of their product. Equipment leasing is the fourth and the fifth is tapping into your customers' credit strength. Many business owners do not even know that the last type is the most important.
It is important to manage your business credit with vendors. This is because your business credit can save you money or cost you money. But what can increase your bottom line is presenting your business in the best light. Your company may look financially unstable or unhealthy when you continually pay past your credit terms and this can cost you money.
Most industries offer 2% net 10. But there are some that offer more but will not print it on their invoices. In this case it is better to call competitive vendors and see what their terms are to make sure you are getting a good offer for paying within net 10 days. Be cautious. If not, you might just be giving away a price lessening you might have been able to negotiate anyway.
Factoring receivables allows you to take advantage of early payment discounts from all your vendors that offer these terms. You need to be in very good credit standing before you ask if you want to increase your credit lines with vendors. And businesses that take advantage of these terms every month are far more obvious by the credit department.
Unlike a bank credit line, vendor credit lines can grow faster. Besides, vendors rate customers by volume and ability to pay. And some business owners have a better edge when it is time to negotiate better prices by having a history of paying their bills on time.
Off-balance sheet equipment leasing is the fourth type of credit. When you can provide bank statements with good cash flow and establish four trade references you can boast about. Nevertheless, it is very important to buy equipment at very low rates.
With factoring your accounts receivable, you can tap into your customers' credit strength by getting advances against funds your customers owe you. And a factoring company establishes accounts receivable credit lines based on your customer's credit or ability to pay, not yours. You can ask the factoring company to fund your invoices daily or what ever meets your needs.
However, with the increased of cash flow, you can take advantage of early payments to vendors with 2% net 10 term and offset some of the cost of factoring. Besides, it is simple and far more leverage than a bank will ever assign.
Increasing cash flow through factoring, you might be able to negotiate better terms from suppliers and vendors, qualify for preferential pricing, and keep your balance sheet debt free.
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