Every business owner experiences a need for additional financing during various stages of their company’s growth. Whether it’s to purchase additional equipment, more inventory, to hire additional staff, increase marketing, or to invest in new research and development — money is always needed.
Capital is a must, and without it, a business simply cannot survive. Today, many business owners benefit by using alternative financing. Gone are the days when one can simply walk into a bank, and get a loan or line of credit. It’s a much tougher lending environment, with greater restrictions and requirements.
The good news is alternative financing is alive and well, with more and more programs coming into the mix. But before exploring the latest programs, a business owner should always take advantage of one of the largest sources of capital available: B2B financing, also known as trade credit or vendor credit.
The three major benefits of B2B financing are:
- Conserving Cash Flow – With b2b financing, a company is able to obtain the products and services it needs from its suppliers up front while allowing payment to be deferred for 30, 60, or even 90 days. This helps conserve cash flow for the more critical short-term expenditures a business may have. The flexible payment terms also allows a business plenty of time to pay the invoice when it comes due.
- Establish Creditworthiness – Many suppliers report payment activity to a business credit reporting agency. The more trade accounts with payment activity one establishes, the stronger the business credit profile it will build. This alone can positively impact the size of the credit limit recommendation for a business, which is determined by the business credit agencies, and publicly disclosed on the business credit file.
- Credit Qualifications – Companies extending credit terms in most cases have minimal qualifications required for approval. Business owners will find that many businesses will extend credit terms with simply the business contact information, Federal Tax Identification Number, Dun & Bradstreet D-U-N-S® Number, authorized name and signature, and not require a Social Security number, or personal guarantee.
Business to business financing is an excellent source of financing for a business. It’s no surprise why companies such as Wal-Mart rely on ‘trade credit’ as its second largest source of capital.
Prior to applying for credit with suppliers, it’s important to know what the requirements are ahead of time. Once approved, a business should regularly purchasing products or services from its suppliers in order to conserve cash flow while establishing its own creditworthiness.