In business, it often makes sense to take every opportunity that can give one firm an advantage over the competition. When it comes to capital management, skilled administration of services and financial products can often mean the difference between a dynamic, growing company and one that is barely surviving.
One of the core struggles of an inventory or product-based business is that keeping both product and capital in perfect balance is often a combination of art and science.
A common method that many such businesses utilize to help themselves grow revenues, increase free capital, or perhaps just give them some extra breathing room every month is something known as a net 30 account.
While this is a cursory overview of what can be a complex topic, this will hopefully shed some light on net 30 accounts from a business planning and strategic perspective. In addition to giving relevant stakeholders necessary, actionable information about this common business account, we’re going to also outline some providers and their specialties.
We’re going to explain how a net 30 account works, some of its key features, how to apply for net 30 accounts, who offers them, and how many your business might need.
In its simplest form, a net 30 account gives a business thirty extra days to pay for a good or service delivered to it.
Also known by other names such as vendor credit, supplier credit, or trade credit, net 30 accounts are the business equivalent of a consumer credit line though not the same as a credit card.
But like an individual credit line or credit card, net 30 accounts can be used over time to establish a payment profile for your company that will impact its future creditworthiness. Sometimes, though not always, net 30 account providers will check the credit reports of business owners or other financial officials though this is often nothing more than a soft inquiry.
Net 30 account applicants are often advised to monitor their personal credit report as well as be aware that net 30 account providers could use this information in some way.
While there are a variety of net 30 accounts out there, a few key features tend to tie them together. These ranges from how they mechanically work to how it impacts your business.
– Obtaining Products and Services for Your Business
Net 30 accounts help businesses obtain products or services and then defer payment on that for 30 days. While most net-30 accounts do not charge interest, buyers could lose access to certain discounts that make paying on time and in full advantageous.
– Your Tradeline is Reported to Bureaus
Like a personal credit line, net 30 accounts are reported to bureaus once they meet a certain trading threshold. It is different for each account and bureau so be sure to examine your account details to see when and how an activity is reported.
– The Approval Process May Require Your Tax Identification Number and 411 Listing.
When it comes to getting approved for a net 30 account, most agencies will require your business’s tax identification number or TIN, as well as, a 411 listing. Other information may also be part of the application process.
– Prepaid Orders to Fulfill Net 30 Requirements.
Some businesses will require you to prepay for items before they will allow you to use your net 30 accounts to make purchases.
– Reporting Activity Can Take Time.
When you open a net 30 account, you will notice a delay between your activity and its reporting to relevant bureaus. If you need to apply for multiple net 30 accounts, you will want to factor this lag into your planning process as new accounts will not post information immediately.
– Typically, Three Tradelines Required to Create a Business Credit Score.
Not only is there a delay in reporting your net 30 account activity, but it also may require multiple accounts to establish your business’s credit score.
Net 30 accounts not only allow businesses to keep shelves stocked or necessary goods and services in circulation, but they also offer a range of structural advantages to businesses that help make them more competitive. Whether a company hopes to grow revenues, expand product lineups, or simply have greater working capital, there is a range of advantages to opening a net 30 account. These include:
Building your business’s creditworthiness is a long-term project that is not only essential to your viability but also could impact your market competitiveness. In other words, you want to have a positive credit reputation, as well as, multiple instruments to utilize should you need them. You don’t want to start building a business credit score in the heat of the moment when you really need a credit line nor do you want to find yourself flat-footed in such a situation and thus unable to obtain working capital or goods.
For many businesses, growth involves expanding their inventory whether in quantity or scope. Net 30 accounts give businesses a financially efficient way of doing just this. Because businesses get a 30-day window before they have to pay for the inventory in question, net 30 credit lines allow them to capitalize on current trends in the market.
Diverting capital from purchasing inventory and services to upgrading equipment instead is just one of the many benefits a net 30 account can offer companies. Rather than spending free capital on upgrading equipment, and perhaps forgoing revenue-generating products or services as a result, net 30 accounts enable a business to leverage its ongoing trade to help meet multiple objectives. Increasing Free Capital.
Certain economic conditions or prevailing business trends might make it wiser to keep more free capital on hand than would otherwise be the case. Net 30 accounts allow businesses to do just that, preserving vital capital for other uses while enabling the firm in question to still trade.
Applying for a net 30 account can either be a simple or complex process depending on who you choose as your provider. You will need to give them a range of pertinent data about your company, including relevant financials.
They may even require personal information about you and other financial officers in the company as well. The process of applying for a net 30 account is not nearly as grueling as that which the business should deploy beforehand in terms of researching relevant vendors and providers.
Why? There are many net 30 account providers out there, some 500,000 by some estimates, but not all of them report activity to relevant credit bureaus. In fact, it is estimated that only about 10,000 do. You will want to target relevant net 30 service providers who also report to credit bureaus to enable your business to potentially seek more efficient or more appropriate net 30 accounts in the future.
Net 30 accounts typically specialize in one core business area though some take a more generalized approach. For example, Strategic Network Solutions gives customers access to technology and “strategic solutions” products while Quill is oriented around office supplies. You can view a list of net 30 account providers here.
The number of net 30 accounts that a business needs is often determined by its unique business situation and current financial alignment.
Because there are net 30 accounts for almost every conceivable purpose, it might make sense for a company to employ a range of net 30 accounts to help them cover relevant business areas.
While there are some net 30 account providers that almost every office-based company could use, such as the aforementioned Quill or Strategic Network Solutions, there are also extremely specialized account providers like Grainger Industrial Supply. This net 30 provider gives customers access to tools, safety equipment, and a range of highly specialized products that might not apply to something like a law firm or app developer.
Aside from that, many business credit bureaus require multiple reports in order to give a business a credit score thus maintaining multiple accounts for this purpose might also make strategic sense.