business finance relations

Financing your business – the overlooked trade credit angle

Access to trade credit facilities is critical for business success. Business financing may come via loans from business owners or even facilities from banks, but it is very likely that the majority of your business funding will be via short-term supplier credit. In simple terms – you probably owe suppliers more at any time than you owe the bank or shareholders!

Having established that your suppliers are the main source of business funding, you may want to stop for a moment and consider what criteria they apply in order to assess whether you are worthy of their terms or not. Frank Knight, CEO of Debtsource – a specialist B2B credit management business – helps us unpack the facts.

First off, make sure you have a ‘clean’ credit record. Nothing tells a supplier that you are a business to whom credit should not be granted, like a credit record with judgements or adverse against the business or directors. If there were prior issues with other creditors, make arrangements to pay these off as soon as possible, and then immediately apply for your credit record to be amended. Bureaus will remove the record once they have received proof from the supplier or institution that the matter has been settled in full, but you need to follow through to make sure that this is attended to. Almost every supplier (including financiers and even clients) will access your credit record upon opening an account or starting your business relationship.

The second piece of advice is to co-operate with the supplier by providing the maximum amount of information about your business in line with the supplier’s requirements. All too often we see credit facilities not being extended due to arrogant management who refuse to share critical financial and operational information with their potential supplier. You have to be sensitive to the requirements of the supplier. Some of them will require financial statements, others need you to co-operate with their credit information agents or credit insurance companies. A lack of co-operation with the supplier or their agent will have the net effect of not being granted a facility or full facility, so best be open and transparent. Suppliers love customers that are open, transparent, willing to co-operate and organised. You’ll probably get more supplier credit facilities this way too!

Get your audited financials up to date. It is quite scary for your potential supplier (future business partner) to assess a business for credit facilities when a financial year-end has long since passed, and the audited financials are still not available. The maximum time period you should allow your accountant to get the audit numbers finalised and signed off within, is 4 months after the financial year-end. If the size of the credit facility warrants it, your suppliers may also call for management accounts, so best ensure that these are kept properly updated too.

Speak to suppliers when you have a problem. You have to appreciate that trade credit suppliers are akin to business partners when it comes to understanding what your challenges are, and especially if it means that you’ll be paying them late. We so often see companies that are very willing to speak to their bankers about tough cash-flows but are quite happy to extend payments to suppliers without as much as a word about what the problems are. When credit controllers call for payment, they are given the run-around with feeble excuses and half-baked reasons for non-payment. No business can realistically build a solid, long-term relationship with a supplier if they are not prepared to have that relationship based on honesty and integrity. Moreover, being upfront with suppliers and sharing your business challenges with them will in all likelihood result in a far more robust business partnership that has longevity – a relationship that will be to your benefit.

As a major source of business funding, trade credit suppliers are critical to the success and longevity of your business. Manage those relationships with the required care and the benefits will be immense. Suppliers will stand by you when times are tough, potentially provide improved pricing (such as bigger settlement discounts) and let you have access to products and services on a “preferred client” basis, and in return they will demand your openness and integrity. Having good relationships in place with trade credit suppliers is great for your business – foster and manage them with care.