Improve your Business Financing with Trade Credits and Discounts from Suppliers

When you are planning to do business with a particular supplier, you must establish the terms of sale before. The sales terms are the dates (and discounts, if applicable) that you must pay your supplier after receiving goods and services. It is rare for businesses to demand immediate payment unless it’s a new company trying to earn their trust. When seeking funding, it can be a good alternative for banks.

The sales terms are displayed in the format “2% / ten days net 30”. You can get a 2% discount if you pay in 10 days or pay the entire amount within 30 days. You will be considered delinquent if you do not pay within 30 days.

Some credit sales terms allow for multiple equal payments. For example, the bill can be split into three equal installments every 15 days. One-third could be paid in 15 days; another third would come in 30 days, and the final third in 45.

Each option has advantages. If a company has a surplus of cash, it should negotiate a sales term with a large early payment discount. For example, a 3% or even 4% discount. This will optimize your cash flow as you’ll end up paying for goods and services cheaper.

If a company is seeking financing, it should look for longer payment delays, such as net 60 or more days. If a company has a large outstanding balance but does not have enough cash to pay it off, it should consider equal payments. Divide the bill into equal payments will maintain a smaller due balance.

Understanding your business’ financial situation is crucial to choosing the best sales terms. Some businesses will not take the prompt payment discount, even if they have positive cash flow. Others may pay quickly but be heavily indebted. Cash flow management can be a very important aspect of your business.

Here are some tips on how to improve your payment rating in your credit bureau.

• Bring your account as close as possible to the current period
• Any amount that is late more than 90 days should be avoided at all costs
• Credit bureaus will want to know about a large number of positive references.

This calculator will calculate the public credit bureau payment index for your company. In the appropriate period, enter the outstanding balance of your non-financial transactions. You can play around with the numbers to see how fluctuation impacts your score and then adjust your average.