If your business struggles from cash flow challenges, you’re not alone. Fortunately, there’s a tool that can help improve cash flow and perhaps even build business credit. That tool is net 30 and net 60 vendor accounts.
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What Are Business Vendors?
A business vendor (or supplier) sells goods or services to another business. If you run a clothing manufacturing company, for example, a vendor might supply you with cloth, labels, equipment, and other supplies you need to make your final product. If you own a construction business, you might purchase lumber, nails, tools, and equipment from a series of vendors as well. The vendor invoices you for those purchases, requiring you pay the balance by a specific number of days after the invoice date.
Vendors are often willing to extend short-term credit to buyers who purchase supplies from them. This is called trade credit or vendor credit. It allows your business to get the supplies or services you need now but pay for them at a later date.
Not only can vendor accounts help your business’ cash flow by letting you buy now and pay later, they can also be an effective way for your company to establish business credit. In fact, even if your business is new, you might be able to qualify for vendor accounts. These accounts are often easier to qualify for than small business loans because limits are lower (at least to start) and suppliers want your business.
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There’s another solid perk you may be able to enjoy when you open vendor accounts. Many vendors don’t require personal credit checks nor personal guarantees. It’s often easier to qualify for this type of short term financing, plus reduce your personal liability while you’re trying to establish business credit history.
Different Types of Vendor Accounts
Vendors extend different types of trade credit to their customers. The most common types of trade credit are as follows:
The net payment terms (sometimes referred to in the industry as “net D payment terms”) refer to how quickly the customer has to pay a vendor’s invoice in full for the supplies or services purchased. Net 60 vendor accounts specifically are a type of trade credit that requires you to pay back a vendor or supplier 60 days from the invoice date. (Terms may be based on business days beyond that invoice date, rather than calendar days, so be sure to check.)
You may not even have to pay interest if you use vendor credit. But you may forgo a cash discount that is available for an early payment, so be sure to review the invoice terms carefully. You’ll often apply by contacting someone in credit sales. Your sales rep may also be able to help you initiate the application.
List of Net 60 Vendors
Typically, it’s easier to find net 30 terms from companies that are willing to extend trade credit to your business. Net 60 terms are not as commonly offered by vendors, especially to newer businesses or newer customers. Sometimes longer terms go to larger businesses, but not always.
The good news is that net 30 accounts can work very well when you’re trying to build business credit. If, however, you’re looking for net 60 terms to help stretch company cash flow a little farther, here are three options you might want to consider:
Business Credit Cards
Business owners often think of credit cards as a convenient payment option while ignoring the fact that they also offer affordable short term credit. Credit cards with grace periods allow you to “float” purchases without paying interest. They may allow you to take advantage of an early payment discount with a vendor and then have up to 60 days to pay for the purchase without incurring interest.
How does that work? Most credit cards offer a grace period, so if you pay the statement balance in full you’ll avoid interest. If you time a major purchase to occur right after the statement closing date then it will appear on the following month’s bill – giving you up to 60 days to pay for that purchase without paying interest.
Of course if you don’t pay your balance in full, you’ll be charged interest at the credit card’s purchase interest rate. And that interest may outweigh the discount you received, so be sure to set up a system to pay on time.
Brex Card for Ecommerce
On the surface, the Brex Card for Ecommerce might look like any other revolving small business credit card you keep in your wallet. However, the way the Brex Card operates makes it similar to vendor accounts in a few ways.
Most notably, the account offers net 60 terms. So, you can take a full 60 days to pay your bill and help extend your cash flow, if needed. (Keep in mind, early payments on accounts may boost your credit scores.)
Your social security number isn’t required to apply for a Brex Card. However, your business will need to be at least one year old and you need to be making $50,000 or more in monthly sales to qualify for an account.
Advantages of an Account with Brex Card for Ecommerce
- Convenient and widely accepted payment method
- No personal guarantee is required, and your personal credit won’t be impacted by opening an account.
- Receive net 60 credit terms
- Enjoy a potential credit limit of 50–100% of your future monthly sales, up to $5 million.
- Account reported to Experian and Dun & Bradstreet.
Nav gives the Brex Card for Ecommerce an 8 out of 10 rating. You can check out the full review here.
How to Choose the Right Vendor Account
When choosing a vendor account, it’s a good idea to pause and ask yourself what goals you’re trying to achieve. By asking yourself the following questions, you can narrow down the right vendor accounts for your company.
- Are you trying to improve business cash flow? A more flexible payment schedule can help you manage cash flow. A net 60 account will probably be more attractive to you than a net 30 account which requires a faster turnaround for payment.
- Do you want to build credit for your business? Consider vendor accounts that report to a commercial credit reporting agency. Vendor accounts with net 30 payment terms are more common in this space.
- Would you like to establish good business credit scores with all three of the major bureaus (Dun & Bradstreet, Experian, and Equifax)? You may need to open multiple vendor accounts that report to different business credit bureaus to accomplish this goal.
- Do you need easy-approval vendor accounts because you’ve never established credit in your company’s name before? Finding vendors with less strict approval criteria should be a priority.
Once you identify the features that matter most to you (e.g. reports to one or more credit bureaus, easy approval, longer net terms etc.), you’ll be better prepared to begin your search.
You can use the BusinessLauncher tool in your free Nav account to help you look for vendors that meet the criteria that’s most important to you. Nav’s MatchFactor technology can also help you shop for small business loans such as a line of credit, invoice financing or a working capital loan.
Make the Most of Vendor Accounts
When you get vendor accounts, it’s important to manage them well. Paying invoices on time will make it more likely that the vendor will raise your credit limit and/or be more open to extending longer terms. Late payments, on the other hand, may trigger late fees and cause the vendor to lower your credit limit. In addition, those late payments may hurt your business credit. (Payments that are just one day late can appear on your business credit reports.)
Once you have established a positive payment history don’t be afraid to ask your existing suppliers if they’re willing to offer better invoice payment terms which will allow you to pay for goods or services at a later date. As a buyer, you may have more leverage than you realize. If you already have existing vendor accounts that are set up with net 30 payment terms, you can also ask suppliers if they’re willing to increase those to net 45 or net 60 terms. You might be able to secure lengthier payment terms and transform your net 30 accounts into net 60 accounts simply by asking.