Smooth business growth is only possible when trade credit is established with suppliers. This relation should never be taken for granted. It is a wise decision to pay invoices on time. This will put the business on a good footing with suppliers. Paying for things slowly means that the business doing this will be shunted towards smaller credit limits. They could even be cut off. Greater buying opportunities exist for businesses which find their names on “good credit list”. There could be special dating terms and additional discounts. The latter is granted only to a select few. A few may even enjoy access to any products which were recently released or even about to be released.
Credit on discretion
Chances are that the supplier has an exclusive department which oversees the credit to clients. The business credit is quite similar to personal credit. The business world, however, looks favorably down on two or more credit reporting entities. Credit limits go up as the number of suppliers goes up. Approvals are more for positive business credit and paying within the terms.
The problems start when the cash flow does not match the 'payables' obligations. The nightmare scenario of any supplier is selling goods on credit terms and then having no money to pay off suppliers. The business in question cannot take advantage of any early payment discounts provided by suppliers. It may not also be able to pay within the set terms. Moving into delinquency with any supplier could terminate future supplies and credit sources. The business will then have to pay cash prior to the release of shipments. The alternative option is to use the “Cash On Delivery” or COD terms.
To avoid such a situation, a factoring company should be used for an accelerated cash flow from the credit term sales. The factoring company funds the businesses for pending invoices which are to be paid by the creditworthy customers. The business can be set up within five working days. The funding service can be utilized for every created invoice. This is similar to the line of credit. Sole collateral needed in such a case is invoiced to the creditworthy accounts. The business can utilize the money to pay off its suppliers. It can also utilize this money to pay off the other expenses required to operate that company. It is vital to be proactive when setting up the factoring arrangement.