Trade Credit: The World’s Biggest Business Lending Resource

Trade Credit: The World’s Biggest Business Lending Resource

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With billions of dollars exchanged daily, trade credit, also called business credit, is the world’s biggest business lending resource.

About half of the U.S.’s 28 million small businesses use some form of trade credit. Why?

Because, as you can probably relate to, they don’t have piles of money lying around to help manage cash flow.

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Keep the cash flowing

Trade credit lets you defer payments for inventory and services, so you can keep your business running while waiting for more cash to come in.

Typically, trade credit is extended for an agreed-upon period, often between 30 to 60 days. When setting those terms, suppliers and vendors will usually consult your business credit report.

If your business credit scores are low, or you don’t have a strong history of making trade payments, you won’t get the best terms. That can be the difference between having to pay cash-on-delivery for your inventory or getting 60 days to pay.

How you can take advantage of trade credit

1. Apply for a DUNS number

For trade credit reporting, Dun & Bradstreet’s Paydex Score, is most commonly used. To establish your credit profile with them, you have to apply for a DUNS number. It’s like a social security number for your business.

You can either get it through the D&B website, or Nav can also establish a DUNS number for free as part of our membership.

The other major business credit reporting bureaus, Experian and Equifax, automatically establish your company’s profile once they detect credit activity.

2. Open credit accounts with trade partners

What suppliers, vendors or service providers do you regularly buy from? This could even be companies like: Staples, Walmart, Comcast, Verizon, Home Depot, UPS, etc.

These credit accounts are usually easy to get. For example, Staples will give almost any business a $100 credit line with net 30 payment terms for office supplies.

And here’s a cool fact: When it comes to building business credit, the number of tradelines you establish and pay on-time matters more than the size of the credit lines.

For example, two current credit lines with $100 credit limit each will improve your business score more than one credit line with a $10,000 limit.

Just know that D&B requires you have at least 3 open tradelines before they create a report on your business. Be sure to check your reports to verify your trade partners are reporting your payment accounts. They are not required to do so.

3. Pay on time and boost your scores

D&B’s Paydex score is solely based on your payment history to your trade creditors. The score ranges from 0 to 100. A score of 80 or more is considered excellent. If you can get your score into this range, it will help you get the most favorable payment terms.

Important! To achieve perfect score, you need to pay early, before your payment’s due.

Payments made on business tradelines affect your credit score differently than personal credit accounts. By law, consumer accounts are given 30 days before delinquencies can be reported, but business accounts can post derogatory comments on your business credit profile in as little as one day past due!

4. Utilize your good business credit

After building a solid history of making payments on time, you’ll be able to use your healthy credit scores to your advantage:

    • Get better repayment terms, e.g., 60 days to pay vs. 30 days

    • Negotiate higher credit lines

    • Access bank lines of credit, loans, and business credit cards

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About the Author — Jared Proctor is the Senior Manager, Content at Nav. He has over fifteen years of financial services experience and written extensively about small business issues.

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