Using Suppliers as a Financing Source Can Help Your Credit Rating
Other than banks, there are additional ways to finance your business, and using suppliers as a financing source can be an interesting alternative.
Negotiating sales terms with your suppliers to your advantage can give you access to weeks, or even months of credit, without even having to pay interest fees on top of potentially also getting prompt payment discounts. Essentially, financing with your suppliers can liberate your line of credit with the bank and even help improve your personal credit score, if the bank loan is endorsed.
Lowering the outstanding balance on the revolving credit will also improve personal credit score. In the case of small or medium enterprises, the administrators or owners must often endorse their company to obtain a bank loan. If the approbation of a credit loan is based on the endorser, then maintaining a good personal credit score is essential to get financing at a low interest rate.
Moreover, the commercial debt with the suppliers is not reported to the personal credit bureau, unlike an endorsed loan. Optimizing the use of suppliers as a source of financing, even when stretching out payments, won't have an impact on the personal credit rating. However, you have to maintain good relations with your suppliers because delinquency can have an impact on the commercial credit score.
Luckily for some, suppliers do not always report their transactions and late payments to the commercial credit bureau. Therefore, there is a greater chance that delinquency towards the suppliers won't be reported, as opposed to default payments towards a bank. A bank will normally report delinquencies to the commercial credit bureau, as well as the personal one if it is endorsed. Suppliers should be the first ones to feel the consequences of a cash flow problem.
Financing with suppliers is an important leverage to stay competitive. As mentioned previously, maintaining a good personal credit score for the endorser is key to financing, especially when the business is a start-up, or a small to medium one.