When people start a business, it is very important for them to establish business trade lines of credit. Without doing so, they are oftentimes unable to cover their expenses until there is enough income to actually cover the overhead. As such, business people absolutely need to know about trade credit. Company owners have various forms of credit available to them.
One such form is trade credit, which is a critical component to running a successful venture. Trade credit is unique because it is an open account with other organizations that allows people to receive goods or services in advance of payment. Unlike a corporate credit card, trade credit is specific to whichever organization the business line of credit is opened with.
Most individuals are familiar with credit from their personal finances. However, unless an individual has run a business, it is unlikely that he or she will understand the intricacies of trade credit. As such, many novice business people make costly mistakes when becoming familiar with this form of credit. It would be wise to learn from the mistakes of others to avoid repeating their errors. The following summarizes some of the more common mistakes people make when dealing with trade or vendor credit:
1. People use cash lines of credit when they should be using trade or vendor credit to save on cash flow. If you are purchasing office supplies for your business use an office supply card with trade credit. Do not use your business credit card that gives you access to cash.
2. Please fail to develop a profile with Dunn & Bradstreet and have their vendors report to D & B to help build the business Paydex score.
3. Business owners fail to have a vendor to report to Corporate Experian® to build your business credit profile with them also. You are not able to pay a fee to Corporate Experian® to build a profile. It can only be triggered by a vendor.
4. People fail to make payments on time. Those who extend trade credit expect timely payments. By not making payments on time, business people not only jeopardize their ability to receive future credit, but they damage the reputation of their businesses.
5 .People forget to ask for increases in their trade or vendor lines of credit. These increases are looked upon favorably by banks when it comes to secure cash lines of credit. A business owner’s good payment history with vendor credit is a good measuring stick by the banks for when they determine how much in cash lines to grant your business!
6. People forget that vendor or trade credit still must be part of the business budget and it must be paid back. It does not mean frivolously spend on trade credit to get your business in a position to get more cash lines. Everything must be used in balance and a business budget is key to keep on track!