Supplier credit is a commonly used method of managing cash-flow. The idea is that the supplies are purchased on credit, work is completed and sold to clients and the supplier is paid at the end of the month. The trick is to manage the work-flow so that payment from clients is received before you need to pay the supplier.
No business is going to risk letting you take goods on a promise to pay if they have doubts about your intention or ability to pay them. So, suppliers expect you to prove to them that you have a good credit history and that your business is sustainable.
Applications for supplier credit vary according to the size of the supplier company. Large companies usually have very stringent criteria and they are not prepared to negotiate or waive any of their requests for information. Smaller suppliers, that are owner managed, may be open to negotiation and prepared to listen to your requests. However, you can expect all suppliers to at least request the following information:
As mentioned earlier, the larger the supplier the more formal the application form. You may also find that some of the multinational companies could request a statement of personal assets and personal sureties signed by the business owners.
Although applications for supplier accounts are generally no more than one or two pages, there is a fair amount of documentation for you to collect before you can submit the form. This includes the following:
If you are requesting supplier credit in order to complete a contract or tender, then you would also need to provide a certified copy of the contract or tender. If you have a recent credit rating for the business and the business owners then this would be useful to include. However, the supplier will probably still conduct a credit check as they do need to make sure that they will be paid for the goods they supply.
The supplier looks for signs of controlled growth, good financial management and sound business practices. These can be found in your financial statements, your bank statements, trade references, credit checks and professional references.
Lastly, suppliers want to be sure that they have some recourse in the event that you don’t pay your account—so they’ll look to you as an individual to get their money back! You may be expected to sign personal surety and that’s not always enough: A supplier may also want to see that you actually have some assets that can be liquidated in case of default—hence the occasional request to see the assets and liabilities statements of the business owners.
Firstly, suppliers aren't expecting you to produce a perfect application. But, you still need to put your best foot forward.
One suggestion to increase your chances of receiving credit is to meet with the management (the higher up in management, the better) of the supplier to make a full business case for your application.
Here are some of the areas you should look at and consider strengthening for your application:
If you have thus far only dealt in cash, document your track record through bank statements, financial statements and cash slips (for goods bought from suppliers).
If you have a good payment record for accounts that are in your personal name, then consider using these to show yourself as an honest person who honours their account commitments.
If the request for a higher credit limit is linked to growth plans you want to put in place, then share these plans with your supplier.
Finfind provides its services free of charge to businesses seeking finance. Our primary purpose is to link SMEs with all the relevant finance providers and finance products that match their funding needs. As a matching service we are not required to be a registered finance provider as we do not loan money directly.