The Small Business Specialists
Phone: 13 12 49
Many businesses use their trade creditors to finance their business activities. Put simply, this means that you buy something, sell it at a profit, and then pay your suppliers with income from the sale. The aim is to slowly build your income until you have sufficient funds to reinvest into the business.
For this method to succeed you need favourable credit terms that allow you sufficient time to sell your inventory and collect payment before the supplier's invoice is due. You must also ensure that agreed credit terms are maintained, otherwise your supplier may cancel your credit account and demand cash on delivery.
Problems can occur if you purchase too much stock that can't be sold in the period or you make incorrect purchases. Liquidity problems for your business are created if you are required to pay for items you can't sell. A business that relies on creditor finance may not be able to absorb idle inventory and associated costs.