Trade Credit

Offer a trade line of credit to increase equipment and supply sales
By Laura Major While consumers no longer pay for goods with an I.O.U., the courtesy of credit trade lines still exists in the business world. A buyer and seller negotiate a credit of trade for goods and services sold instead of a credit card payment or cash on delivery. Providing your customers with a trade line of credit allows business start-ups to get off the ground and allows clients to continue running the business during lean times. This added benefit breeds client loyalty and trust as well as increased profits.

Just like consumer credit, business trade credit is not free and exposes the supplier to nonpayment risk. You can, however, manage this risk factor with the following:

1. Grant trade credits to noncash customers and discounts to cash clients. Limiting discounts to cash customers offsets the potential nonpayment risk that comes with offering credit.
2. Investigate your credit clients' creditworthiness and manage trade credit loans.
3. Use trade credit insurance in conjunction with the other options to eliminate the cost of nonpayment.

Offer established credit trade lines and cash discounts to increase profits

Give a discount to cash customers to reduce credit costs and reward cash customers with the best price. The benefit of cash discounts, also called early payment discounts, rides on the payment period you set and the payment methods you accept. Generally, the business industry recognizes cash in its various forms excluding credit cards.
Try:  Take the Get Business Credit Now tutorial through Ark Refreshments to determine if trade credit will improve your business. Ark offers a fee-based six-month training program and coaching to implement a trade credit program that fits your company needs. Conduct the extension of trade credit with an application. Download the Credit Guru's sample credit application for guidelines.

Assess your client's credit risk and delegate trade credit loan management

Consult a business credit bureau before extending credit to customers. Besides credit references and your direct client experience, credit bureau reports offer a snapshot of a client's creditworthiness and the state of the business. Enlist the help of a credit outsource company to manage your trade credit agreement, relieving you of the finer details of granting credit. Identifying your client's payment history creates sound trade credit decisions.
Try:  Research your client's business history through a business credit bureau such as Business Credit USA. You have to pay for their full service, but take advantage of their free trial to see the benefits for your company. Tracking your credit line accounts can be a business onto itself, so take the Trade Credit Express tour to see whether outsourcing trade credit would be more efficient that in-house credit granting.

Protect your profits with trade credit insurance

Unforeseen events can turn a trustworthy client into a greater credit risk. Based on your business operating style, insurance can cover the cost of nonpayment of trade credit in business. While trade credit insurance reduces the effects of nonpayment, you first need to determine if your company's exposure is high enough to warrant the cost of coverage.
Try:  Calculate the monetary benefit of trade credit insurance with the Credit Insurance Cost/Benefit Analysis calculator. If you determine that it's economically beneficial, locate trade credit insurance providers through Creditworthy.

• Offering trade credit only on purchases of a certain amount reduces overall costs and nonpayment risk.
• If you prefer to manage trade credit in-house be prepared to determine late payment fees, trade credit interest rates, application terms and collection processes.