Businesses financing sales to other businesses
B2B financing is the lubricant between businesses doing business with each other. Without that lubricant much less business would be done. Cash on the barrel head slows your business's growth rate. The discounts that you give and the interest you pay are an accepted part of doing business. If your customer takes longer to pay, then you benefit from discounts not taken and/or interest paid. Of course it is a double edged sword when you are late with your payments.
The following 2 items provide an incentive for your customer to pay on time. This is very important to you as a business owner. Chronic late payments by your customers would require additional operating capital to run your business.
Net 30 - This means that an invoice must be paid within 30 days or interest charges may accrue.
1% 10, Net 30 - The invoice must be paid within 30 days, but if paid within 10 days there is a 1% discount.
There are many forms of financing available to your business. These include bank financing, angel investors and vulture capitalists. Some of these are mentioned in other pages on this website. However, there is one that is directly related to B2B.
Factoring - This is where a finance company will advance your business money using your accounts receivables as collateral. This can be a great advantage, since you will need less operating funds to operate your business. It is less likely that you will slip into high debt with this method of financing. The reason is because you must pay off the loan as soon as your customer pays you.
This is where the rubber meets the road. Your business does not want to give any form of credit to some junk company that never pays its bills or is on the verge of bankruptcy. You need a reliable way to find out the credit rating of any business that you deal with.
Above you have been shown how important it is not to give credit to poor credit risks. The same applies to your business with other companies. If you have good credit, as a business, then you can get good terms when you buy your supplies.
In order to do business with other businesses, you need to be able to give and receive B2B financing. If cash is required of all transactions, then you will have a very slow growing business due to a scarcity of operating capital.
