Credit extensions from trade accounts is another source of business capital. Suppliers may choose to allow invoices to go unpaid for 30 to 60 days or may draft a formal agreement issuing credit for a specified period of time.
Issues to Consider
Some written agreements may stipulate a penalty for late payments. Review all contracts and agreements carefully.
Ask whether there are any additional fees or consequences associated with paying invoices late that are not stated in the agreement.
Carefully consider your rate of profit as you weigh your ability to pay over time.
Understand the consequences of potentially being viewed as a credit risk. If you repeatedly ask for an extension, vendors may refuse to do business with you in the future.
Compare:
Advantages
Can be arranged quickly and on a relatively informal basis.
There is no application or processing fee.
Disadvantages
Must be used carefully. For example, if you do not repay a contract until after the 30-60 day period, you may get a reputation of paying your bills late and be viewed as a credit risk.
