Stable cash flow is critical to the profitability of a business. Maintaining cash flow is also a key factor in building business credit: when business owners pay their bills on time, that consistency is reflected in their credit scores. One of the ways businesses manage their cash flow more effectively is by leveraging business net-30 accounts.
A net-30 account allows you to make purchases from vendors and take an extra 30 days to pay, giving you more flexibility as you cover other costs and receive payment from your own customers.
What is a net-30 account and how does it work?
A net-30 account — also called vendor credit, supplier credit, or trade credit — is a type of business credit extended by vendors to the businesses that buy from them. Business net-30 accounts allow you to purchase a product or service now and pay for it later.
These types of accounts are similar to an interest-free line of credit where the balance of your account replenishes as you pay it off within the agreed-upon time frame. A net-30 account gives you 30 days to pay your invoice in full. Some vendors will also offer net-60 or net-90 repayment terms that give you 60 or 90 days to pay.
One of the benefits of a net-30 account is that there’s no interest. Because there’s no interest charge, credit limits can be lower than other types of financing, so ensure that the limit you’re approved for is enough to cover the purchases you want to make.
Another benefit of using a net-30 account is that it could help you build your business credit score, as long as the vendor reports to major credit bureaus. If you do not qualify for a business credit card or business financing, a net-30 account can help you build the credit history you need to apply.
Many vendors will report payments to commercial credit bureaus, helping you build good credit as you pay off your invoices on time. This information will appear on your business credit report. To build your credit, make sure that the vendor reports to one of the major credit bureaus such as Dun & Bradstreet (D&B), Experian, or Equifax.
Each vendor has its own reporting schedule, but many report on the first of the month. Paying your invoices ahead of time boosts your creditworthiness and can earn you early payment discounts or, at the very least, save you late payment fees.
Additionally, some vendors may not take credit cards, but they might offer net-30 accounts, allowing you to take advantage of credit for cash purchases. Using a net-30 account alongside your credit card enables you to have more working capital for your business. Rather than putting a balance on your card, you can keep purchases on the net-30 account and use your credit card for other business expenses.
One of the drawbacks of a business net-30 account is that it can only be used at the vendor that’s offering it. Another financing option that allows you to use credit with any vendor is a business line of credit. With a line of credit from a lender that caters to small businesses, you can reap some of the benefits of a net-30 account with any purchase you need to make.
Using a net-30 account in your business
Net-30 accounts are a great way to maximize your cash flow. They work well if you need to purchase materials to make products that you’ll sell as time goes on, or to front the costs of inventory.
For example, a clothing retailer that has a net-30 account with one of its suppliers can purchase extra inventory even if it doesn’t have the cash on hand. The retailer can rely on the revenue it will make from the clothes throughout the month and pay its invoice 30 days later, after those sales have been made.
You can find net-30 accounts with a variety of vendors, not just inventory or material suppliers. Digital marketing agencies like NAMYNOT and Creative Analytics also offer net-30 accounts to their clients to kick-start their marketing initiatives. If you need office supplies or other operational goods (like packaging for shipments or janitorial products), many of the major suppliers in the U.S. offer net-30 accounts. Here are a few you might want to look into:
Uline: Uline provides everything from shipping supplies to cleaning products and warehouse equipment. If you already have a Uline account, it’s easy to select net-30 as your billing method. If you’re a new customer, you can also request net-30 as your billing method, but you may have to go through an approval process. Depending on your eligibility, Uline will set a limit for the net-30 account and that information should be provided after you’ve been approved.
Grainger: Grainger offers businesses a wide range of products, including metalworking machinery, and plumbing and HVAC supplies, tools, and safety equipment. You can create an account online, but you need to phone the company at 1-800-GRAINGER to set up a line of credit. Currently, Grainger offers a base credit limit of $1,000 that you can increase as you do business with the company.
Quill: Quill sells an extensive range of office supplies and furniture from printer ink and paper to coffee makers. To get a line of credit, you have to make an initial purchase. Credit decisions can take up to one business day. Similar to Uline, the credit limit they can offer you is determined through the application process and is based on their assessment.
Applying for a net-30 account
Before you apply for a net-30 account, it’s a good idea to have an Employer Identification Number (EIN) from the IRS as well as a DUNS number, which is the identifier used by Dun & Bradstreet. It’s also beneficial to register your business in your state and form a legal entity, like an LLC, S Corp., or C Corp.
Application processes vary by vendor, but there are a few things to know before you apply for a business net-30 account. Many vendors will make a credit decision in one business day and if you have an existing account with them, they might provide approval immediately.
Vendors may not conduct a personal credit check, so even if you have a low credit score, you can still be approved. If they do check, these are typically considered “soft inquiries” that do not harm your credit score, but there’s no guarantee that they will not perform a hard inquiry. Be sure to understand what the impact of leveraging a net-30 account will be on your business credit before making a commitment.
However, vendors might assess your business’s credit history. If your business is brand new and you haven’t established a solid credit history, you may need to provide a personal guarantee. A personal guarantee means that your own assets are on the line if you cannot repay your balance.
Many vendors will require you to make an initial purchase and select net-30 as your billing option either online or over the phone to establish the credit account. They may have a minimum purchase requirement. Some vendors also charge an initial or annual membership fee for their net-30 accounts.
Business net-30 accounts enable new businesses to establish credit without taking on high-interest debt. They also help businesses stay flexible when it comes to financing operational costs and waiting on payment from customers. A net-30 account might be right for you if there are vendors you purchase from frequently and if you would benefit from having extra days to repay your invoices. As you continue to expand and strengthen your business, a net-30 account can help you manage your resources and ensure that you have the working capital to keep growing.
Fundbox and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
Fundbox did not receive compensation for including companies or products in this list. Information presented is current at the time of publication and may change over time.