As your business expands it is likely that you will seek to offer trade credit terms to customers to continue growth.
Trade credit is an agreement between both the customer and supplier of the goods. With this agreement, both parties acknowledge that the buyer of the goods is able to purchase the goods on account and then pay the supplier with cash at a later date. These dates can range anywhere from 30, 60, 90, or even 180 days.
In its absolute simplest form, trade credit is essentially like running your credit card: the buyer is able to obtain the goods right away, and then actually release payment for said goods at a later date.
Advantages of Extending Trade Credit
- Increased chances of conducting more business – If your company is able to extend trade credit, there’s a very good chance that you will see a surge in the amount of business that you are conducting. Paying for goods ‘on account’ enables your customers to pay at a later date and generate cashflow from sold goods to pay for stock.
- The absence of cash can be a blessing – In regards to the perspective of the one purchasing the goods, the lack of the involvement of cash in these deals can be a blessing in disguise. Trade credits allow resellers to get important inventory for their company right away, but also enables them to use real cash to pay off more pressing payments (e.g. impeding debts).
- Chance to make additional profit – This is an advantage that is strictly exclusive to the seller. As with any purchases that are made on credit, there is a long list of fees that are involved with such deals that can be quite profitable for the seller. Interest fees and late payment fees pop up frequently with such deals, and this enables the seller to make more money on a deal than they would if they conducted the sale by the means of cash.
Yegg Inc offer a range of trade credit solutions and insurances. Please contact us for more information.