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How Do I Get Better Supplier Credit?

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  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 05 September 2016
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Supplier credit — also called trade credit in some cases — is a short-term loan where the vendor holds the note for purchased goods. It is quite beneficial to businesses as suppliers generally have fewer requirements when offering credit when compared to banks or other lenders. To better supplier credit, a company should establish a solid financial history when doing business, negotiate credit terms with suppliers, and research all suppliers in a surrounding market. These tools combined should help a company gain an advantage when approaching a supplier for credit. Sometimes, a company may even be able to improve credit currently held with suppliers and vendors.

When it comes to offering credit, suppliers almost always look at a company’s financial position or history. Therefore, it behooves companies to be as creditworthy as possible in these terms, such as always paying bills on time and living within the company’s means. Additionally, a supplier may also require contact information with other vendors that offer credit to the company. This information allows a new supplier to assess the company’s repayment style. Vendor references are often preferable as compared to standard bank references or contacts.

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Companies should always negotiate terms when it comes to supplier credit. The most negotiable parts of this deal may be the discount off a good’s price, credit limit, frequency of repayment, and similar issues. Though a company should always conduct these negotiations upfront, it can also do so after holding a credit account for some time with a supplier. In some cases, it is a good idea to renegotiate supplier credit terms after the company has held the account for several months. This allows the company to potentially strengthen its position in the current market.

Another way to get better supplier credit is to research current competition among suppliers and look for a better deal. If a company finds a comparable supplier with better supplier credit terms, then renegotiations with the current supplier may begin. In business, this process often carries the term “keeping suppliers honest,” as a company has the ability to dictate terms to suppliers rather than the other way around. This process carries some risk; just because a company can get better supplier credit terms does not mean the company will get better service in the long run. Therefore, a company should keep this in mind when negotiating and attempting to force suppliers into better credit terms.

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