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How Business Vendor Credit Accounts Can Improve a Business Credit Portfolio

Published By Faith Stewart at October 21st, 2021

How Business Vendor Credit Accounts Can Improve a Business Credit Portfolio

Business vendor credit accounts are not usually talked about as part of a business credit portfolio. The emphasis is generally put on credit cards, lines of credit, and loans. However, they are vitally important to the cause. 

A Strong Business Credit Portfolio Can Help Move Your Business Forward

A business credit portfolio is made up of all of the credit you have available to your business.

That includes: 

  • Loans
  • Lines of Credit
  • Credit Cards
  • And even business vendor credit accounts

Having a strong business credit portfolio is important for running and growing your business. It’s how you ensure you have the funding you need, available when you need it.  It helps you bridge both planned and unexpected cash gaps. 

Even better, it will allow you to seize opportunities to grow and scale.  Better yet, you can do without creating a cash flow problem. 

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How Do You Build a Strong Business Credit Portfolio?

business vendor credit Credit Suite2 - How Business Vendor Credit Accounts Can Improve a Business Credit PortfolioSome business owners just use their personal credit to get started.  That’s not necessarily the best way. Most do not even realize there is another way. It actually starts with business vendor credit accounts.  These are accounts with vendors that allow you to pay invoices on net terms, rather than right away. 

How can net 30 vendors and and accounts with longer net terms really help? There are actually a number of ways. They not only contribute to a strong portfolio, but they can be a gateway to building an even stronger portfolio. 

How Vendor Credit Accounts Contribute to a Credit Portfolio

Using net 30 vendor accounts allows you to manage cash flow.   The best part is you can do so without paying interest. This is because net accounts are paid off in total at the end of the net terms. Usually that is 30, 60, 90, or 120 days. 

Cash Flow Management and the Credit Portfolio

Managing cash flow is really what the business credit portfolio is all about. A strong portfolio allows you to get what you need when you need it.  There is no need to use up cash reserves or wait until you have enough cash on hand. 

It’s smart to use business vendor credit whenever possible. By doing so, you save the revolving credit for larger purchases or those purchases you do not have vendor credit available for. 

Business Vendor Credit Helps Build Your Credit Portfolio

Here’s another way business vendor credit can improve your business credit portfolio. If you get the right accounts and use them properly, they can help you fill your credit profile with more business credit. As a result, you can rely less heavily on your personal credit. 

Here’s how that works. As a new business, you will not yet have a business credit profile. There is no history of your business paying obligations, and there is no business credit score. 

Since it’s virtually impossible to get credit without credit, there is a problem. Before you can build a business credit profile, you have to have initial accounts reporting. 

Using Business Vendor Credit Accounts To Get Accounts Reporting

There are not many business accounts you can get without already having a business credit score.  However, there are a few net 30vendors that will offer net terms on invoices without doing a credit check. We call these starter vendors.

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That doesn’t mean they extend credit to any and all businesses. There are still factors they consider to determine creditworthiness. These vary from vendor to vendor, but can include things like: 

  • Time in business
  • Business bank account
  • And more

Using Starter Vendors to Build a Business Credit Profile

Extending credit without a credit check is not the only thing that makes a vendor a starter vendor. The other thing that starter vendors do that sets them apart is report on-time payments to the business credit reporting agencies. This is how you start to build a business credit score.

How to Find Starter Vendors

This part is tricky for a number of reasons. Most vendors that will extend net terms will tell you whether or not they do a credit check. What they will not usually tell you is whether or not they report your payments. Many will report late or missed payments, but few report positive payment history. 

You need accounts that will report positive payment history to build a business credit profile. 

There are a couple of ways to find starter vendors. The first way is to apply for accounts with the vendors you already use or want to build a relationship with. If you get approval, use the account. Then, monitor your business credit report to see if they are reporting.

There are a few problems with this method.  First, it is not guaranteed. There are not a lot of starter vendors out there. That means the chances that you just happen to find enough by trial-and-error are low. It takes more than one or two accounts reporting. You need a few.

This trial-and-error process can be very slow. The only way to know if it is working or not is to monitor your business credit. Unlike consumer credit monitoring, business credit monitoring is not free. Therefore, you are going to be paying to build business credit regardless. That is, unless you do not track your progress at all. 

There is a Better Way

The slow progress and uncertainty of trial-and-error wastes time and can cause a lot of frustration. A better way is to start with vendors you already know are starter vendors. The key is to work with someone who has an inside track on which creditors will extend net credit without a credit check and report on-time payments. 

By doing this, you can know that as you get approval and start using the credit, your business credit score is growing.  Working with a business credit specialist is much faster and saves a ton of frustration. It frees you up to run your business. You don’t have to try to figure out which vendors can help build your profile. 

Many times a business credit specialist can help you find less costly ways to monitor your business credit reports as well. 

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Using Vendor Business Credit Wisely

There is a chance some of the vendors you need to work with to get accounts initially reporting will not be vendors you would have otherwise chosen. They may not sell things you think you need. The thing is, most of them sell things that every business can use. 

There is no need to buy a bunch of useless stuff to build business credit. You can buy packing supplies, office supplies, even janitorial supplies. Whatever you do, just be sure you pay on time, or better yet, early.

Business Vendor Credit Accounts Really Can Improve a Business Credit Portfolio

In fact, without them, it’s almost impossible to build a business credit portfolio at all. Your only option is to use a personal guarantee and collateral on virtually all accounts.  While neither of these things are bad, the less you have to use them the better. 

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