Supplier credit is a financing option in which a supplier allows a buyer to defer payment for goods or services for a certain period of time. This can provide working capital benefits for the buyer, who can access the goods or services they need without paying for them immediately.
Supplier credit can be beneficial for both parties. For the supplier, it can help to secure business and maintain a good relationship with the buyer. For the buyer, it can help to improve cash flow and provide more flexibility in managing finances.
Here's how supplier credit works:
A buyer places an order with a supplier for goods or services.
The supplier agrees to provide the goods or services on credit, meaning the buyer does not have to pay for them upfront.
The supplier sets a payment deadline, typically ranging from 30 to 90 days, by which the buyer must pay for the goods or services.
The buyer receives the goods or services and uses them to generate revenue.
When the payment deadline arrives, the buyer pays the supplier for the goods or services provided.
To obtain supplier credit, a business will typically need to establish a good credit history with the supplier. This may involve paying invoices on time and building a positive relationship with the supplier.
In some cases, a buyer may be able to negotiate more favorable credit terms with the supplier. This could involve extending the payment deadline or reducing the interest rate charged on the outstanding balance.
Supplier credit can be a helpful financing option for businesses, as it can help them manage their cash flow and access the goods or services they need to operate and grow their business.
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