By Marcy Shinder

In a slow economy, a wide variety of companies are eager to fine-tune their product lines to hold onto existing customers or to edge out the competition. Whether you provide customers with new manufacturing solutions or provide innovative packaging, getting new business in a down economy is a real triumph, but it doesn’t come without its challenges. That’s because a slow economy is also accompanied by slow payments across the board, which means poor cash flow for nearly everyone.

 

If you’re dealing with cash flow concerns, make sure you’re taking advantage of every tool available, including the tried-and-true cash flow management tool known as trade terms. To avoid end-of-the-month anguish, understand how trade terms work, how they can be used to even out cash flow, and what you can do to gain access to trade terms, or similar tools. The following provides the basics of trade terms along with tips on how to put them to work for your business.

 

Understand the basics of trade terms

The idea behind trade terms is simple. A company and its suppliers agree on the timing of payments and how much is due at a given date, such as payment in full in 30 days. To encourage early payment, however, suppliers may include an incentive of 1% or 2% for customers who pay within 10 days. When your business has cash and can make early payments, earning a 1% or 2% discount is a great option that puts your cash to work. In a slow economy when profits are slim, discounts like this are a valuable tool for boosting margins. Consider it the equivalent of adding 1% or 2% to your markup.

 

There are, of course, times when early payment isn’t an option. To help alleviate cash-flow worries, some vendors offer trade terms that will permit you to delay payment. Under these terms, customers agree to make a designated partial payment and are permitted to take the goods and defer full payment for a specified term, such as for an additional 30 days.

 

Actively pursue trade terms

Approach your vendors to negotiate more favorable terms, but keep in mind that some vendors simply don’t offer them, and that it may take time to convince a vendor. Because trade terms are about trust and creditworthiness, you can expect the most from companies with which you have the longest and best relationships. If you find you’re not at first successful in gaining trade terms, look at what makes your best customers valuable and use that knowledge to make yourself more attractive to vendors. Volume and regularity of business are both important factors. Consider consolidating business with one company, for example, or look at formalizing a standing order with a particular vendor instead of ordering sporadically.

 

There will, of course, always be vendors who don’t offer trade terms, as well as expenses such as utilities that will never qualify. In these cases, look for other ways that you can avoid paying cash to improve cash flow. Using charge and credit cards that offer cash back or other rewards is one way of earning a form of discount. Another possibility is to use cards that offer trade-like terms such as the Plum Card from American Express OPEN. While seemingly modest, all of these techniques can go a long way.

 

Keep credit records in order

Whether you already receive trade terms or hope to qualify for them in the future, it is important to establish and keep a strong credit record. Make it easy for vendors and credit issuers to confirm that you’re an established business, by registering with commercial credit bureaus like Dun & Bradstreet and the Small Business Financial Exchange.

 

You’ll also want to make certain that the credit records on file are accurate. Contact credit bureaus to verify the information in your credit report and check your company profile for errors. If you do find mistakes, be sure to address them immediately to maintain good standing.

 

Mastering the art of cash flow management takes time and diligence, but by closely monitoring cash and using all the tools available to you, better cash flow is within reach. Also keep in mind that the sooner you develop strong cash flow management skills, the more you’ll profit over time. Because despite today’s difficult market, the work you put in now to establishing healthy cash flow will eventually provide the reserves needed to take full advantage of great opportunities when the economy rebounds.