Wednesday, March 10, 2010

How to improve your businesses commercial credit appeal

How to improve your businesses commercial credit appeal

So how can your business increase its credit appeal to other business from which you want trade credit terms? The best way is simply to make it easy for the Credit Manager or Credit Analyst to say yes. As was mentioned before paying your invoices on time is an important step, but there are other factors as well. Part of these relate to how important a particular supplier is to your business. Let me give an example:

Suppose you set up a small manufacturing business selling (you hope) the world famous “Whoitz.” In order to make the “Whoitz” you must have parts for it which mainly consist of the “Whatitz”, the “Wigget”, and the “Watchyamacallit.” Suppose a freight company who you contacted to ship your “Whoitz” wants to do investigate your credit. If all you list on your trade references are such businesses as office supply, quick printers, and the like-these are called weak references. They are not major or vital business partners and could be fairly easily changed if there was a problem. The person analyzing your credit wants to know how you pay your major suppliers-this is called the payment hierarchy and for your business, the suppliers of “Whatitz”, ” “Wigget,” and “Watchyamacallit” will stand first in the payment line because their products are vital. A company supplying paper and pencils will be at the end of the line and seasoned credit people know this. A perspective supplier will try to predict where his company will stand in the payment line, so when its time to pay bills, make sure your major suppliers, and other vital services like power and light, stand first in line. This makes financial sense.

You may also have a sheet of credit references prepared: printed, faxable, and E-mailable. As was mentioned in another article, you have already started building a business relationship with your major trade credit people and your business banker. Everything from a credit standpoint is in order and easily found, and in a professionally provided format. This makes your business appealing to a credit person, and makes it more likely that they will grant your credit terms request.

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