What is Trade Credit or Accounts Payable Finance?
Trade Credit is for when a business purchases Goods (typically for resale) without having to pay their supplier in advance or Cash on Delivery (COD). Many also refer to this as Accounts Payable Financing.
When the business receives goods, they typically have 30-90 days to pay the supplier or manufacturer. WIP Funding will provide credit to the business owner. The business owner can pay the credit back when they sell the inventory, or a fundable receivable is created that can be sold to an invoice factoring company.
This type of credit is especially useful when the supplier offers a payment discount based on getting the payment within a specific period. Usually 3% cash, 2% 10-days, net 30, etc. As a result, it leaves more profit for the business owner. An extended payment date also increases free cash that the business can use for other reasons, including paying monthly recurring bills.
Wal-mart, the largest retailer in the world, uses Trade Credit more often than bank financing. Trade Credit is an essential tool for many businesses to be able to grow. WIP Funding is start-up friendly and will assist them with trade credit. The majority of suppliers will not offer trade credit to new businesses due to the high risk of failure. Also, working with WIP Funding to develop a good payment history will make the company potentially eligible for Trade Credit from the supplier in the future.
Understanding Accounts Payable Financing
Accounts Payable Financing, also known as Vendor Financing, is a relatively new form of credit. Similar to invoice factoring, it is based on the creditworthiness of the sizeable credit-worthy buyer. WIP Funding will look at the creditworthiness of the ultimate payee. Many times a business doesn’t have to put up any collateral.
Accounts Payable (AP) Financing is an excellent source of working capital because the business owner doesn’t have to use their cash flow or any of their company resources. This form of financing builds up a significant relationship between the business owner and various vendors. It will lead to exclusive discounts or pricing in the future. For example, if the supplier needs to ration the product, many times, they will choose to fill the company’s order with better payment history.
Computing the cost of AP Financing is easy. The business owner will always know the value of having goods readily available. Also, they won’t be hit with fluctuating charges and high fees if there is an unforeseen delay. One may utilize additional capital to grow the business. More importantly, it does not limit the company to some orders they can fill.
AP Financing also can improve a company’s overall margins. Suppliers often offer a discount or some perk for guaranteed payment. Historically, suppliers also show preference to businesses with this kind of guarantee.
The goal of WIP Funding is to get a business the materials and supplies needed to take their company to the next level. WIP Funding doesn’t want a business owner to be forced to sell equity in their company every time they have a growth opportunity. A new and growing company can still receive the working capital and expertise offered to larger corporations by utilizing WIP Funding today.