Building Business Credit: How to Use Net 30 Accounts to Your Advantage
As soon as a company (vendor) extends a line of credit to your business on "Net 30" day terms, you can purchase its products or services up to a maximum dollar amount and you have 30 days to pay the bill in full.
So if your business were to purchase $300 worth of products today, then that $300 is due within the next 30 days.
Keep in mind that it’s always best to pay 15 0r even 20 days ahead of the due date so your company credit report reflects that your business pays 15 or 20 days sooner than terms. Would you rather have an 80 paydex score or a 90 paydex score?
Key facts you should know about Net 30 Accounts
- You can obtain products and services your business needs and defer the payment on those for 30 days, thereby conserving cash flow. This is called "Net 30."
- When your first Net 30 account reports your "tradeline" to Dun and Bradstreet, the DUNS system will automatically activate your file if it isn't already. This is also true for Corporate Experian and Small Business Equifax.
- Some net 30 vendors will approve your company upon verification of as little as a Tax Identification number and a 411 business listing.
- Some vendors will require an initial prepaid order before they can approve your business for net 30 terms.
- You must be patient and allow time for the vendors' data reporting cycles to get into the reporting systems of bureaus like DNB.
- It takes a minimum of three reporting tradelines to establish a business credit score (Paydex) with DNB.
More articles from AllBusiness.com:
- What Are the Advantages of Business Credit Cards?
- When Financing Business Equipment Should You Lease, Borrow, Use Credit, or Pay Cash?
- How to Negotiate Better Payment Terms
- Guide to Bookkeeping and Accounting
- 5 Common Small Business Owner Challenges, and How to Solve Them
Building business credit
Once you open an account with a vendor, you must consistently use it. For example, when you receive a $500 Net 30 credit line, you must make purchases from that vendor each month for a period of at least a year.
You will build strong scores in as little as 120 days, but to fully optimize your credit profile you need to use the accounts longer.
Don’t make the big mistake of making just one purchase in the first month, then another in month four and another in month ten. You need to consistently use all your new credit lines each and every month.
Make purchases and then pay off those purchases in full at least 15 to 20 days early (by day 15-10 in the case of Net 30 accounts) every month.
By following these steps you will be building a business credit history for your company in the most effective way possible. Consistency and responsibility are the key to maximizing your scores and enabling your business to qualify for larger credit limits, more favorable terms, and the lowest rates possible.
RELATED: A Simple 6-Month Plan to Help You Build Business Credit
