Just about every survey and data source says that trade credit is the second largest source of small business financing after banks. The question is: are you taking advantage of it?

Trade credit simply means that a vendor extends you credit terms, giv…

We see that a lot too – small clients offer a 2% net 10 to a large client, only to have the large client pay in 45 days and still take the 2% discount (thank you very much).

I am not sure there is much that you can do. Some have tried eliminating the 2% discount, but that puts them at risk of loosing the large client. Others have tried having a conversation with the paying manager. They were not receptive though… they liked the 2% discount and the ability to pay late.

One thing we tried, with some sucess, is imprinting all invoices with a small “We report all trade experiences to credit bureaus” message. We made it small enought to be noticed, but not taken as a threat. Think small font, yet conspicuous

Well, they noticed it alright. We got some calls about it by clients. We calmly explained that as a matter of process we shared our payment experiences with credit bureaus as it also allows our clients to build a good credit history – a necessity in this economy. We always slated things in the positive and ***NEVER*** as a threat.

For the most part clients started paying with in terms.

But bear in mind, it can be a risky strategy as some clients may take the message the wrong way.

Best,
Marco

Thanks again!

Mary Grace

I recognize your arguments. You sound like a purchaser!

“The way I look at it is: if I can save $1,000, I think about how much I’d need to raise prices or how many more sales I’d need, in order to drop $1,000 to my bottom line. Because that $1,000 saved is pure profit!”

I saw this trade credit take place when I was buying from German suppliers.

One of the big questions about trade credit is whether one should offer it or not. There is always a risk of offering 30 or 60 days and having the client default on the invoice. That can be very significant, especially to a small business.

I wrote a short blog post a few days ago on how to do simple credit reviews on commercial clients – it’s at this link:
offering 30 days terms. NOte this is very basic stuff and does not go into more complex checks…

The gist of it is that one has to check out their clients thoroughly – either though a commercial bureau or using a credit app – to ensure that prospects have a good payment history.

Cheers,
Marco