Credit terms are an essential part of business trades. Along with funding, credit terms keep small businesses with limited capital going. Financing remains one of the biggest challenges SMEs in Malaysia face, which makes this matter more critical.
But SMEs are not the only ones that benefit from credit terms. Large corporations also rely on credit terms to make sales, as buyers would not be able to make purchases with lean cash reserves. And large corporations need buyers to sustain their business.
This is where credit terms come in – essentially an agreement between a buyer and seller on how much and when the buyer has to pay for their purchase.
Businesses set up credit policies to boost commerce as customers can purchase goods without having to pay upfront. By the time the payment is due, the buyer would have sold the goods and be able to make payment.
Why Do Businesses Need Credit Terms?
The main reason businesses need credit terms is to establish good cash flow.
Credit terms ensure that you have enough cash on hand at all times. Without credit terms, you would have to use a lot of money to buy supplies or inventory. And you will only get that cash back when you’ve sold to consumers, which can take a long time.
But with a credit agreement, you can stock up on inventory while retaining cash until the payment is due. With enough time to sell to consumers and money to cover expenses, you will be able to scale faster.
Depending on their connection with clients, the nature of their business, and financial data, businesses determine their own credit terms. For instance, Dropee Credit provides 60-day credit periods so that you can buy any item on our marketplace multiple times. As long as you make your payments on time, there are also no interest costs or hidden charges!
Aside from having cash on hand when you need it, what are the other advantages of credit terms?
Advantages of Credit Terms for Retailers
Gain More Flexibility
Businesses that buy goods on credit have a competitive edge over rivals that must pay upfront. With more cash, your business is instantly more flexible to adapt to changing market demands. This is because you can get a constant supply of goods through credit terms even if you’re finances are tight.
Maintaining relationships with your vendors is also a gateway to industry insights that could boost your position. Your suppliers will keep in touch with many businesses – including yours – which gives them knowledge on key market changes that they can share with you.
Increase Creditworthiness
Paying on time consistently helps you build a good credit history, which only boosts your reputation and creditworthiness. Suppliers that consider you a valuable customer are more likely to recommend a different supplier in the event that they run out of goods.
Building a solid rapport and credit history will give confidence to new suppliers to offer your business trade credit too. This way, you can develop a solid chain of suppliers that do not require cash upfront.
Enjoy Trade Discounts
Part of running a successful business is to keep costs at a minimum – which you can achieve with credit terms. It’s common practice for suppliers to offer discounts for payments made on certain dates after goods are delivered. The general rule of thumb is: the sooner you pay, the greater the discount.
Suppliers also typically offer repeat customers and those with a good credit history discounts for bulk purchases or even exclusive access to limited goods.
Boost Business Growth
Selling to consumers consistently while having a constant supply of products can quickly boost your business growth. Credit terms allow businesses to have more cash, which increases available capital.
Not only will you save more money with trade credit, but you will also save the time that would have been spent on applying for loans and securing funding. With more funds and time, businesses can expand faster than ever.
Get More Cash on Hand with Dropee Credit
With Dropee Credit, you can stock up on goods from our marketplace without any upfront payment. Our 60 days payment term ensures that you have ample time to sell the products and earn a profit before the bill is due!
This means you will reap all the benefits we touched on earlier to grow your business. Keen to sign up for Dropee Credit? Click here to apply!
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