Are you maximizing supplier credit?
Suppliers extend payment terms to customers based upon their assessment of the customer’s credit worthiness and market conditions. Special circumstances may entice a supplier to provide additional credit to the customer thus providing interest-free financing for the customer’s working capital.
Special circumstances may include a new product category or location. It is not unusual for the supplier to provide a larger amount of sample merchandise, promotional material and/or extended credit to support the growth of the customer’s business. In some industries this includes the extension of terms from 30 days to 6 months.
Customers who have established a strong track record of timely payments may be eligible for a review of their credit line. This is particularly true when the client is growing or has another event that allows the supplier to anticipate higher future revenue. In addition, if the customer has a lowered credit limit and has demonstrated a good payment record, the supplier’s credit department may be willing to expand the credit line. The supplier may be offering 30 day terms but not matching your purchase volume with those terms, such that you are bumping into a credit limit before the 30 day window has been met. This is an appropriate time to ask for a higher credit limit.
A large sale may justify longer terms when you work with the supplier providing them with knowledge of the transaction. You can use a large purchase to request pricing and credit support to land a new customer, expand a line to a customer and/or to secure a large job. Many suppliers are happy to work with you in these circumstances as they see incremental volume.
In some industries, payment terms are more suggestions than rules. Large companies often have pushed the limits of supplier terms by paying when they wish rather than when the supplier wants payment. Given their size and credit worthiness, suppliers accept this practice. If you are buying from these industries, the supplier may be happy to get paid in 45 days versus their stated 30 day terms. Obviously suppliers do not want to open the flood gates by revealing they tolerate payment beyond terms but you can learn about industry practices and request a longer window to pay.
B2B CFO® has over 200 experienced chief financial officers who stand ready to help businesses improve their cash management processes.