Building Credit With Vendors

Now more than ever, a line of credit is essential to the success of virtually any business. Unfortunately, many new small business owners can find it difficult to establish a solid credit line with required vendors, especially during tight economic conditions.

If you've found yourself in the same quandary, here are some tips to remember.

• Clean your personal credit house. Make certain that your personal credit score is good. Get a copy of your credit report and verify that all the information is accurate. If there are any negative elements, see what you can do about resolving them or, if they're not accurate, having them removed. You can find out how to access your credit score information at the Federal Trade Commission website, http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre34.shtm.

• Start small. Building relationships does not happen overnight. You want to establish a relationship of trust with the vendor . Sometimes it makes more sense to not ask for credit until after you have shown the vendor a pattern of paying on time. Experienced vendors have heard it all, so show them through consistent actions that you mean business and that you are as committed to keeping your word and your commitment as you would be to any legally-binding contract.

• Have documentation to share. If you don't have a proven track record with a vendor, it is often necessary to share cash flow or other financial statements with them to establish a line of credit. They may want to see some formal reports to make a better determination about your business' ability to repay. Make this process as easy as possible, and have easily understandable documents and reports prepared before you approach the vendor with your request. Anticipate anything that might cause their hesitation, and come prepared. By being transparent in your dealings with prospective vendors, you are both entrusting them with your information and establishing a precedent of trust that may inspire them to reciprocate that trust.
  
  Vendors require some sort of objective indication that you are credit worthy, but your business may be too young to provide it. If you have established any other business relationships, see if they can help you make your case with the vendor. What the vendor usually wants to see is a letter or some form of proof that you are meeting all your obligations on time. It may not be sufficient to get them to offer the credit you need, but it can be more convincing than simply asking them to trust you blindly.

  Credit lines with vendors are an important part of the way many small businesses operate. As a small business owner, you have to understand that especially in creating these relationships, trust is a crucial part of every decision. In order to prove you are worthy of credit, you must first be worthy of credit fastidious in your bill paying, and serious about fulfilling all of your responsibilities. Even if you have not yet had the time to earn and build trust, when you can show a vendor that you are a business owner who shares the characteristics of their finest customers, you will find it easier to arrange the credit you need.

THIS IS NOT INVESTMENT, TAX OR LEGAL ADVICE. Consult with a financial advisor, accountant or attorney before making important decisions in these areas.

THIS IS NOT INVESTMENT, TAX OR LEGAL ADVICE. Consult with a financial advisor, accountant or attorney before making important decisions in these areas.