If your business struggles from cash flow problems from time to time, you’re not alone. Most entrepreneurs will find themselves juggling bills when business is slow, or clients pay late. Fortunately, there’s a tool that can help improve cash flow and perhaps even build business credit: That tool is net-30 and net-60 vendor accounts.

What Are Business Vendors?

A business vendor (or supplier) sells goods or services to another business. If you run a clothing manufacturing company, for example, a vendor might supply you with cloth, labels, equipment, and other supplies you need to make your final product. If you own a construction business, you might purchase lumber, nails, tools, and equipment from a series of vendors as well. Rather than paying for what you need upfront, the vendor invoices you for those purchases, requiring you pay the balance by a specific number of days after the invoice date. 

Vendors are often willing to extend short-term credit to small business owners who purchase services or supplies from them. This is called trade credit or vendor credit. It allows your business to get the supplies or services you need now but pay for them at a later date. 

Not only can vendor accounts help your business’s cash flow by letting you buy now and pay later, they can also be an effective way for your company to establish business credit. This is true only if the vendor reports payments to business credit bureaus. In fact, even if your business is new, you might be able to qualify for vendor accounts. These accounts are often easier to qualify for than small business loans because limits are lower (at least to start) and suppliers want your business. 

There’s another solid perk you may be able to enjoy when you open vendor accounts. Many vendors don’t require personal credit checks or personal guarantees. It’s often easier to qualify for this type of short term financing, plus reduce your personal liability while you’re trying to establish business credit history.

Nav Prime can give you up to two actively reporting tradelines to all major business credit bureaus. Whether you need help or not, building a strong profile is a key step to long-term business credit success.

What Net-60 Payment Terms Mean

Vendors extend different types of trade credit terms to their customers. The most common types of trade credit are as follows:

• Net-30 Accounts
• Net-60 Accounts
• Net-90 Accounts

The net payment terms (sometimes referred to in the industry as “net D payment terms”) refer to how quickly the customer has to pay a vendor’s invoice in full for the supplies or services purchased.

Net-60 vendor accounts specifically are a type of trade credit that requires you to pay back the invoice amount 60 days from the invoice date. (Terms may be based on business days beyond that invoice date, rather than calendar days, so be sure to check.) Note that the invoice date and the due date are two separate dates.

You may not even have to pay interest if you use vendor credit. But you may forgo a cash discount that is available for an early payment, so be sure to review the invoice terms carefully. You’ll often apply by contacting someone in credit sales. Your sales rep may also be able to help you initiate the application. 

Pros and Cons of Net-60 Payment Terms

As with any type of business financing there are pros and cons.

List of Net-60 Vendors

Typically, it’s easier to find net-30 terms from companies that are willing to extend trade credit to your business. Net-60 terms are not as commonly offered by vendors, especially to newer businesses or newer customers. Sometimes longer terms go to larger businesses, but not always. 

The good news is that net-30 accounts can work very well when you’re getting started. Once you establish an on-time payment history, ask your supplier for longer payment terms.

In addition, here are options to consider:

• Faire offers eligible businesses 60-day net terms. 
• Abound offers net-60 payment terms to qualified retailers. You’ll need a payment method linked to your account, and it will be automatically charged when your payment is due.
• Creoate offers up to 60 days to pay to qualified retailers.
• Mirta Wholesale offers 60 days to pay with a helpful online tool to help you determine if your business qualifies.
• ApparelCandy offers payment terms of up to six months through Behalf (application required and interest will be charged).

While these offer longer payment terms they may not build business credit. Check with the vendor to find out if it reports if that is important to you.

What Are 2% Net-60 Terms?

With vendor terms there is a discount if you pay quickly. An account that offers 2/15 net 60 terms provides a 2% discount if the invoice is paid in full within 15 days. If you do not, the discount will not be given and the balance is due in 60 days from the invoice date.

What’s Better: Net 30 or Net 60?

Longer payment terms gives the entrepreneur longer to pay the amount due, and in that regard it can be helpful for cash flow. They allow the business owner to get what they need to produce products or services without having to pay for them upfront. On the other hand, the longer the terms, it’s also possible for a business to incur more debt with longer terms.

How to Choose the Right Vendor Account

When choosing a vendor account, it’s a good idea to pause and ask yourself what goals you’re trying to achieve. By asking yourself the following questions, you can narrow down the right vendor accounts for your company.

• Are you trying to improve business cash flow? A more flexible payment schedule can help you manage cash flow. A net 60 account will probably be more attractive to you than a net 30 account which requires a faster turnaround for payment.
• Do you want to build credit for your business? Consider vendor accounts that report to a commercial credit reporting agency. Vendor accounts with net 30 payment terms are more common in this space.
• Would you like to establish good business credit scores with all three of the major bureaus (Experian, Equifax, and Dun & Bradstreet)? You may need to open multiple vendor accounts that report to different business credit bureaus to accomplish this goal (although your Nav Prime payments and Nav Prime Card* payments are automatically sent to the major business credit bureaus).
• Do you need easy-approval vendor accounts because you’ve never established credit in your company’s name before? Finding vendors with less strict approval criteria should be a priority. New clients may need to establish a purchase history before they can qualify for payment terms.

Once you identify the features that matter most to you (e.g. reports to one or more credit bureaus, easy approval, longer net terms etc.), you’ll be better prepared to begin your search.

Make the Most of Vendor Accounts

When you get vendor accounts, it’s important to manage them well. Paying invoices on time will make it more likely that the vendor will raise your credit limit and/or be more open to extending longer terms. Late payments, on the other hand, may trigger late fees and cause the vendor to lower your credit limit. In addition, those late payments may hurt your business credit. (Payments that are just one day late can appear on your business credit reports.)

Once you have established a positive payment history don’t be afraid to ask your existing suppliers if they’re willing to offer better invoice payment terms which will allow you to pay for goods or services at a later date. As a buyer, you may have more leverage than you realize. If you already have existing vendor accounts that are set up with net-30 payment terms, you can also ask suppliers if they’re willing to increase those to net-45 or net-60 terms. You might be able to secure longer payment terms and transform your net-30 accounts into net-60 accounts simply by asking.

Alternative to Net-60 Terms

Not all vendors allow you to pay later. In addition, this is very short-term financing and there may be times when you need the ability to pay for purchases over a longer period of time. In that case, you may want to consider other forms of business financing such as:

• Business loans or lines of credit: With these types of financing you may be able to repay debt over a period of months or years. Either can be helpful for larger projects with a longer payoff. A line of credit, in particular, can be a helpful alternative to vendor terms. However, most lenders require documented revenues, good credit and at least a year in business to qualify. 
• Business credit cards: Business owners often think of credit cards as a convenient payment option while overlooking the fact that they also offer affordable short term credit. Credit cards with grace periods allow you to “float” purchases without paying interest. They may allow you to take advantage of an early payment discount with a vendor and then have up to 60 days to pay for the purchase without incurring interest. 

How does that work? Most credit cards offer a grace period, so if you pay the statement balance in full you’ll avoid interest. If you time a major purchase to occur right after the statement closing date then it will appear on the following month’s bill – giving you up to 60 days to pay for that purchase without paying interest. 

Of course if you don’t pay your balance in full, you’ll be charged interest at the credit card’s purchase interest rate. And that interest may outweigh the discount you received, so be sure to set up a system to pay on time. 

*DISCLAIMER: Nav Technologies, Inc. is a financial technology company and not a bank. Banking services provided by Blue Ridge Bank, N.A., and Thread Bank, Members FDIC. The Nav Visa® Business Debit Card is issued by Blue Ridge Bank, N.A. or Thread Bank, and the Nav Prime Charge Card is issued by Thread Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa cards are accepted. FDIC insurance is available for your funds on deposit, up to $250,000 through Blue Ridge Bank, N.A. or Thread Bank, Members FDIC. See Cardholder Terms for additional details.