Trade Credit is utilized when a business purchases goods (typically for resale) without having to pay their supplier in advance or Cash on Delivery (COD). This is also known as Accounts Payable Financing.
How Accounts Payable Financing Works?
When the business receives goods, they typically have 30-90 days to pay the supplier or manufacturer. ARFunding.org will provide credit to the business owner, and 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 receiving payment within a certain time period (3% cash, 2% 10-days, net 30, etc.) This 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. ARFunding.org is start-up friendly and will assist them with trade credit. The majority of suppliers will not offer trade credit to a new business due to the high risk of failure. In addition, working with ARFunding.org to develop a good payment history will make the business potentially eligible for Trade Credit from the supplier in the future.
What is Vendor 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 large credit-worthy buyer. ARFunding.org 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 a great source of working capital.
AP Financing is a great source of working capital. In an AP Financing, business owners don’t have to use their own cash flow or any of their own company resources.
- This form of financing builds up a great relationship between the business owner and various vendors.
- This could lead to special 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 a better payment history.
Why Is Accounts Payable Financing a Preferred Option?
- It is easy to compute the cost of AP Financing. The business owner will always know the cost of having goods readily available. Also, they won’t be hit with fluctuating charges and high fees if there is an unforeseen delay. The additional capital can be used to grow the business, and the company is not limited to a number of orders they are able to fill.
- AP Financing also has the ability to improve a company’s overall margins. Suppliers often offer a discount or some type of perk for a guaranteed payment. Historically, suppliers also show preference to businesses with this kind of guarantee.
The goal at ARFunding.org is to get a business with the materials and supplies needed to take their company to the next level. ARFunding.org 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 with ARFunding.org today.