How to Get More Trade Credit from Your Suppliers

If you’re a contractor or landscaper, your success often depends on your ability to get financing so you can purchase the supplies and equipment you need. Business loans and lines of credit are the financing sources most business owners think of first. However, they can be time-consuming to apply for, and are often an expensive source of financing. Why not look for funds in your existing business relationships? Getting more trade credit from your suppliers is one way to do so.

Trade credit basics

Trade credit, sometimes called net terms or vendor credit, is the practice of buying products or services to be paid for at a date in the future. Instead of paying right away, your business gets the goods or services it needs, and the supplier sends you an invoice that must typically be paid in 30, 60 or 90 days. (“Net 30” is the most common, although terms can be as short as 10 days or as long as 120 days in some cases).

Trade credit is an ideal financing method for contractors and landscape businesses. As seasonal businesses whose income fluctuates, these companies can use trade credit to manage cash flow better by delaying payments. Contractors and landscapers can also use trade credit to buy the materials they need for projects, then pay for them later (such as after the project is completed and the client has paid).

Getting trade credit is generally easy to do. Suppliers will typically ask you to fill out a credit application and provide trade references (that is, other companies you’ve received trade credit from). Once they check your business credit report and your references, they’ll set trade credit terms.

How to get more trade credit

When your suppliers first extend trade credit to your business, your limits may be lower than you’d like. How can you get more trade credit from your suppliers? Here are some ideas.

1. Approach multiple suppliers

If Supplier A doesn’t want to up your limit, all is not lost. You can get more trade credit by doing business with multiple suppliers. For example, suppose Supplier A provides window frames, doors, drywall and flooring for your business but only gives you $50,000 trade credit limit—which isn’t enough. Use Supplier A to provide window frames and look for Suppliers B, C, and D to provide doors, drywall, and flooring. If each gives you $50,000 in trade credit, you’ve just expanded your limit to $200,000 altogether.

2. Adjust your terms

Even if you can’t get a higher trade credit limit, you may be able to get better terms, such as extending from net 30 to net 60. Many suppliers offer discounts for early payment; taking advantage of these can save you substantial money. You can also talk to your supplier about spreading out your payments—such as paying more during busy months when you have a lot of income and less during your slow season.

3. Build your credit profile

The best way to get more trade credit is to build a strong credit profile and reputation with suppliers. Here’s how:

• Do business with suppliers that report your payment history to business credit bureaus. (Many don’t.) Reporting a positive payment history will build your business credit rating. If a supplier doesn’t automatically do this, you may be able to ask them to do it—just talk to their accounting department.

• Use business credit cards wisely. You can also enhance your credit rating by using business credit cards and paying the bills on time. Check to see if your credit cards report to the business credit bureaus—not all of them do.

• Consistently pay suppliers a bit early. Suppliers will take notice if your payments are always early. Pay early enough, and you might get the benefit of an early payment discount, too.

• Renegotiate with the supplier. After you’ve been paying on time (or early) for 6 months, talk to the supplier to see if they’ll increase your trade credit limit.

4. Build a relationship with your supplier

Strong relationships with suppliers are the real key to getting better trade credit terms. Suppliers need to trust you before they’ll extend more credit. The following steps will help build a lasting relationship:

5. Clarify expectations on both sides

You should have a written supplier relationship agreement that covers delivery terms, payment terms, price, and other details so there’s no confusion. Also document the supplier process internally, such as what happens when a shipment arrives or what to do if the shipment is damaged.

6. Keep the lines of communication open

Regularly talk to your suppliers about what’s going on with your business, such as growth plans, new hires, prospective business, and so on. Communication is especially important if you foresee any problems making your payments on time. Letting the supplier know what’s going on and working out an alternative solution, such as partial payments, can help keep the relationship strong.

7. Treat your supplier like a partner

A good supplier-buyer relationship is much more than just a business transaction. Involving your suppliers in strategic planning for your business can help both of you get the most from the relationship. For instance, if you’re planning to expand your landscaping business to handle commercial as well as residential clients, see if your suppliers can work with you to identify the best materials or develop new products. The more closely your suppliers are involved in your success, the more likely they’ll be to extend more trade credit.

8. Get to know your suppliers

All else being equal, most of us prefer to do business with people we like. You don’t have to be best buddies with your supplier, but you should make an effort to be friendly. Keep in touch on social media, reach out with a phone call from time to time, send them holiday cards, and invite them to get together for lunch or dinner.  

Bottom line

Trade credit is one of the most valuable financing tools a landscaping or contracting business can have. Use it wisely, and it will help your business grow.

This guest post was written by Irene Malatesta of Fundbox.