Need A Little Breathing Room? Ask Your Suppliers

Most businesses in today's marketplace are in the unenviable position of having to provide credit to their customers. This is especially true if you own a small business that sells to large businesses. Your customers due to their size and buying ability can put the squeeze on you just about anytime they want. So you end up extending them credit. Maybe you give them thirty days to pay you. But I bet they take sixty days or longer to actually get you a check. This situation can put a lot of pressure on your company’s finances.

To help alleviate the problem you need to ask your suppliers for lines of credit too. You can't afford to be paying for supplies and materials up front when you don't get paid up front also. An added benefit of this additional credit is that it's usually interest free. You do have to keep in mind that some companies can penalize you a small percentage for paying late but many do not and some will even offer a discount for paying early.

You'll find that supplier credit lines are integral to helping improve your cash flow. And as your business grows your suppliers will be able to develop a deeper relationship with you. Plus your bank will appreciate you having those lines of credit. Because if that credit is available to you then you're less reliant on the bank when money is tight. To the bank this is a good thing.

So how do we go about establishing these lines of credit? We ask of course. If you do business with other small businesses then all you probably have to do is ask for a credit line. If you've already got a solid relationship with them then they'll probably be more than willing to extend credit. Basically a hand shake and a quick letter of credit that you can show your bank later if need be. I really do suggest you make sure to get a letter of credit for your records even if your supplier never had you fill out a credit application with them.

Most of your suppliers will provide you with some sort of basic credit application. If they've got a good relationship with you this will still only be a formality. I do suggest you be proactive and put together a basic company information sheet. It should have information like the legal name of the business, your employer identification number, business address and phone numbers, plus your best credit references on it. Many businesses will accept this instead of having to fill out a credit application as it contains most of the information they are seeking anyway.

If you are applying for credit with a larger company the application process will be a bit more thorough. Make sure your credit references are good and you might want to consider letting them know that you've used them as references. Larger companies want your business too but are more wary when extending credit to small companies even if you have a history with them. Even if you have done a lot of business with them they realize that you had to pay up front to get what you needed. Their question becomes how good are you at paying when they've already given you what you needed?

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Cash Miller is the Editor of SmallBusinessDelivered.com and hosts his own blog at www.SmallBusinessDelivered.com/cash-millers-blog.