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Tips on Obtaining Vendor/Supplier Financing

LegacyFinancing & Credit

You might not think of it as "financing," but when your supplier extends credit to you, that's exactly what it is. Net 30 terms are essentially a loan: your supplier loans you their goods with the understanding that you will pay for them within 30 days.

Unfortunately, in many businesses the sales cycle lasts longer than the time your vendors allow you to pay for the goods. The goods you paid for may sit on your shelves for several months before they sell, which can lead to a cash crunch. You might also consider accounts receivable financing in this case.

Some business owners will push their luck, waiting months to pay their invoices. This isn't a wise move. If you know you'll need some extra time to pay, let your suppliers know upfront. They may be willing to extend you some extra credit to help you through tough times.

Working successfully with suppliers

Here are some tips for getting what you need from your suppliers while keeping them happy.

Build a good relationship. The stronger your relationship with your vendors and suppliers, the more likely they will work with you on payment terms. One sure-fire way to keep the relationship on good terms is to pay your bills on time. Unless you have an agreement with a vendor, don't push the limits of payment terms, and don't wait for them to initiate collection proceedings. This delay can damage your credit rating, and may eliminate the chance of a supplier extending future credit.

Remain current on all your vendor and supplier relationships. If you request financing from one vendor and they find out that you're behind on your other accounts, they are less likely to grant your request.

Maintain good credit. While vendors may not have as stringent requirements as traditional lenders, maintaining good personal and business credit is still a good idea. If you can demonstrate that you present a good credit risk, the vendor may be more likely to extend financing to you. Make sure you clean up your company's credit.

Forfeit vendor discounts to extend payment terms. Vendors and suppliers frequently offer discounts for early payment. In some instances, you may be able to extend payment terms in lieu of other discounts.

Allow the vendor to hold a lien on materials sold to you in exchange for an extension of loan terms. You may be able to use items purchased from a vendor as security for extending payment terms. As with any other lender, vendors and suppliers are more comfortable taking a risk if they have some form of collateral in the event you can't pay your bill.

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