Maintain your old Siemens Hipath system

Trade Credit: How to Determine if You Should Offer Net-30 Terms to Your Customers

What is trade credit?

One of the major differences between consumer and commercial transactions is that most, if not all, consumer transactions are paid in cash or by credit card at the time of sale. Because of this, most consumer businesses never have to worry about extending credit to a customer and can run their operations on an "all cash" basis. This allows them to focus on their core competencies because they don't have to carry slow paying Accounts Receivables and go through the expense of collecting on such accounts.

However, commercial transactions are different. Most clients ask their suppliers to deliver services immediately and then to invoice them for the work, payable 30 days later (also known as offering net-30). In effect, clients ask their suppliers provide them with "trade credit" for 30 days. Although suppliers don't like offering trade credit, most have accepted it as an industry standard and have learned how to operate and live with it. In fact, some suppliers have even mastered how to offer trade credit and use it to better position their companies with leading clients. Large creditworthy customers, such as the government or large companies, will usually demand trade credit as part of their contract negotiations. Some examples of entities that ask for 30 to 60 day payment terms are:

o Fortune 500 companies
o Large and medium sized companies
o State government agencies
o Federal government agencies

On the positive side, providing trade credit to the proper clients can be a tool that allows your company to win important contracts and position it for growth. However, providing credit is also risky and can erode the company's cash position if it is misused. Furthermore, offering trade credit to less-than-creditworthy clients can burden the company with bad debt and affect its growth prospects. Because of this, business owners must walk a fine line balancing their desires to grow their businesses with the necessities of offering credit to their customers.

Keys to providing trade credit successfully

The best way to minimize the risk of providing trade credit to a client is to perform a credit analysis on him. Although no credit analysis is 100% perfect, they allow business owners to make an informed decision on whom to issue credit to. Here are the three key points to making a credit analysis.

o Have the customer fill out a credit application
Have all your customers that want credit fill out a simple credit application. This will allow you to have all relevant facts in a single document. The application should ask for the following information:
1. Company structure
2. Banking relationships
3. Commercial references
4. Supplier references

o Check bank and supplier references
In their credit applications most clients will only list banking and commercial relationships that will position them in a favorable light - however - it is always a good idea to check on all of them anyway. Banks will only be able to confirm that the client has an account with them. Supplier references, however, may provide critical information regarding the clients' payment habits.

o Check commercial credit reports
There are a number of companies that sell commercial credit reports on businesses. As opposed to consumer credit reports that require special permissions, commercial credit reports can be obtained for any business without asking for prior permission. Reports vary in their level of detail and accuracy and can be obtained for as little as a few dollars. However, all reports will include important information to help your credit department make a decision. More detailed reports will cost a few hundred dollars. You can obtain credit reports from the following companies:
a) Dun & Bradstreet (www.dnb.com)
b) Experian (www.experian.com)
c) Credit.net (www.credit.net)

Doing a credit analysis on your clients will allow you to determine how much ? if any ? trade credit you can give them. Clients that do not have a favorable credit analysis should be placed on a COD (Cash On Delivery) basis, at least initially, to reduce the risk of non-payments.

The challenges of offering trade credit

One of the main drawbacks of providing trade credit is that it can create a cash flow problem for the company that offers it. Large suppliers with adequate cash cushions in the bank can easily afford to offer credit. However, small suppliers with lean bank accounts usually find that offering credit will drain their cash resources and create financial challenges. It is not uncommon for small businesses to find themselves with a cash flow gap after offering trade credit to their larger clients. This gap is created by the fact that the company's Accounts Receivable account is strong while the company's bank accounts and cash position are weak. The cash flow gap places the business at risk of missing payroll and debt payments. It also prevents it from pursuing new opportunities because they don't have the funds to buy resources or hire the necessary staff.

Bridging the "cash flow" gap

The biggest asset that most new businesses have, aside from their equipment and intangibles (e.g. employees), is their unpaid invoices or Accounts Receivable. Accounts Receivable is an asset that can be quickly converted into cash by using a financial tool called factoring. Factoring allows a business to sell the financial rights to their Accounts Receivable to a third party, called a Factor. As part of the sale, the factor immediately advances a large portion of the cash value of the unpaid invoices to the business. The business can then use this cash infusion to strengthen its cash position and meet its obligations. In the meantime, the factor, which now owns the invoices, waits to get paid by the customer. Factoring enables business owners to outsource their trade credit function to the factor and to turn their companies into the equivalent of an "all cash" business. If you want to learn more about factoring and how it can be used to grow your business, please read our white paper titled "Factoring: Cash on Demand for your business without debt or loans"

About Marco Terry

Marco Terry is president of Commercial Capital LLC, a leading commercial finance company that specializes in providing working capital through factoring to small businesses. For more information or a free consultation, please visit our web site at http://factoring.ccapital.net or call us at (786) 206 4722.

In The News:

Germany calls emergency migration summit
Wed, 20 Jun 2018 13:06:00 +0100
An emergency meeting of key European leaders has been convened in Brussels this Sunday to discuss migration at the request of Germany.

Trump set to end migrant family separations
Wed, 20 Jun 2018 15:59:00 +0100
Donald Trump has said he will sign an executive order to end family separations at the southern US border.

Taliban kill 30 soldiers days after ceasefire
Wed, 20 Jun 2018 09:52:00 +0100
Taliban militants have killed around 30 Afghan security forces in multiple attacks in western Afghanistan, officials have said, days after the group ended its ceasefire.

Cost of some US goods to rise by 25% on Friday
Wed, 20 Jun 2018 12:35:00 +0100
The EU has said its retaliatory tariffs on US goods will kick-in from Friday - six weeks after America slapped import duties on the bloc's steel and aluminium products.

Sexual torture used in UAE-run Yemeni prisons
Wed, 20 Jun 2018 07:40:00 +0100
Yemeni men are reportedly being sexually tortured in secret UAE-controlled prisons where they are held without charges or trials.



tikatoshop.it

Erfahrungen mit Pallhuber Wein
Agen Bola SBOBET Terpercaya

Travel in comfort and at your leisure with CT Airlink Limousine & Car Service for top quality private transportation and exceptional customer service. We operate Sedans, SUVs & Vans for CT Car Services to covering all Connecticut airports including Car Service from CT to Newark Airport , Mohegan Casino Uncasville CT, Foxwoods Casino Mashantucket CT, Manhattan Cruise Terminal NYC, Brooklyn Cruise Terminal NYC and Bayonne Cruise Terminal NJ. CT Airlink hire licensed and friendly chauffeurs who have in-depth knowledge of the Areas.

Do you Know the Benefits of Checking your Credit Report?

Do you know why you should check your credit report?Of... Read More

Small Business Credit Cards

So what do you look for when applying for a... Read More

Good Credit is King, When Qualifying for Mortgage Programs

If you want to purchase a new home or refinance... Read More

Credit Problems? Heres How to Manage Your Creditors

If you find that creditors are calling you almost daily... Read More

Using Credit Cards Wisely

"I think money was stolen from my card" or "I... Read More

Finding What is on Your Credit Report

A credit report is basically a file about you kept... Read More

Maximizing Credit Card Rewards

We spend money every single day on many different types... Read More

Our World Of Credit Cards! Which One Is Right For You

There are not many of us who do not have... Read More

Sound Advice For First Time Credit Card Users

If you are just entering the world of credit cards,... Read More

Credit Cards for Home Business

It is wise for you to have a company credit... Read More

Fixing A Credit Report

Fixing a credit report starts with seeing what's on it.... Read More

Credit Cards, Merchant Accounts, and Your Bottomline

Q: I'm opening a gift shop and want to be... Read More

Negotiating Rates with Your Credit Card Company

Ok, let's face it, everybody hates high credit card rates,... Read More

Commercial Collections And Credit Granting

It is estimated that billions of dollars in delinquent commercial... Read More

Credit Scoring: What You Dont Know Can Hurt You

You've probably heard the term credit scoring. You may have... Read More

Trying to Land a Job? Poor Credit Scores May Hurt Your Chances

Many employers are now looking at an applicant's credit report... Read More

Automobile Credit Report

When applying for a loan to purchase a car, the... Read More

Choosing A New Credit Card

1. Choosing A new credit cardThere are many reasons for... Read More

How to Order the Right Credit Reports to Repair Your Own Credit

In this week's article, I am going to offer some... Read More

The Three Largest Factors In Your Interest Rate

There are three major factors that affect how much you... Read More

Credit Card Debt: One Way To Avoid It

One of the biggest problems people have in these modern... Read More

Simplifying Your Search For a New Credit Card

Today, selecting the proper credit card can be a bit... Read More

Your Guide On Choosing a Credit Card To Suit You

Reach into your wallet or purse, pull out a card,... Read More

Bailiffs & Council Tax - Knowing What To Do

This article is about bailiffs who may call trying to... Read More

How To Repair Your Credit Report

A credit report is run on a buyer when he... Read More