Start Up Tips – Getting Credit

As a new business start up with no trading history managing your cash flow can be made more difficult if you cannot get credit from suppliers. Many start ups find themselves buying everything on cash-on-delivery terms or even paying up front. When they factor in production or lead time, and credit offered to customers this can mean it weeks or even months before that money is recouped from customers. Ironically it’s then when business takes off that the real problem kicks in as the business has an even bigger cash shortfall.

Some ways to help alleviate this situation are:

Start Early

From your very first day in business look for ways to build up a credit history with local businesses who perhaps know you personally. Buying fuel on credit from your local service station who’s known you for years means this person can act as a referee

Meet Your Suppliers

Get out and meet your potential suppliers in person. Tell them about your business and your future plans, let them get to know you, build a relationship and trust. In Ireland there’s every chance that you’ll have contacts in common and this might give the supplier a chance to “check you out”. And because it’s such a small world you might even be related!

Always Ask

Many new businesses work on the assumption that credit isn’t available and simply don’t ask. Before you place the first order with a new supplier ask about credit terms, offer to pay upfront or COD but also ask if credit will be available in future. Some companies will offer credit after an initial few orders. If you can place a number of smaller orders over a period this could result in obtaining credit sooner than you think.

Business Credit Card

When you set up your business bank account get a business credit card. Use this to make large cash purchases. If you can plan purchases to maximise the credit available, so much the better. Some suppliers will offer credit against a business credit card which will help where you are being asked for upfront payments.

Talk to Your Bank

As your business grows talk to your bank, keep them informed of how the business is growing. In most cases you’ll know you’re going to need an overdraft so start the application early and support it with written orders from customer and cash flow forecasts

Agree credit terms in advance with Customers

Agree when payment is expected and any terms and conditions. Where possible ask for a deposit or part payment in advance, with the balance on delivery / completion. Some customers will be in a position to do this and if you don’t ask you certainly won’t get it.

Sales Invoices

Get into the habit early of regular and accurate invoicing, including a retention of title clause. Don’t ever let a backlog develop in sales invoicing, and be sure to follow up a few days later to see if the invoice has been received and accepted.

Cash Collection

You’ve done the work or provided the goods or service so don’t ever be embarrassed to ask for the monies due to you. Too many small business owners