A Few Different Kinds of Business Credit

The choices can be confusing so here are some basic definitions.

Store/Vendor Credit

When businesses need to buy office supplies, products to resell, or materials to manufacture products, they often purchase them on credit terms. The terms give the business from 30 days to 90 days to pay for the materials. Sometimes the company offering the terms will add a finance surcharge to the total purchase, or offer a cash discount, if payment is made within a certain time frame, say ten days.

A credit application can be required to obtain the credit and a credit report as well. Occasionally the store or vendor doesn’t require anything and will just bill the business for the merchandise or service.

The US Postal Service doesn’t offer any sort of credit to businesses for delivery services but many other delivery companies do.

Business Credit Cards

Are issued to the business and are used much the same way as personal credit cards are. They’re helpful when nothing but a credit card is accepted such as car rentals or hotel stays. The interest rate is rather high just like personal credit cards. Business credit cards can be helpful when tracking business expenses, travel for example and separating it from personal expenses. It also eliminates the need for expense reports if you use the business card and not your personal credit card.

Consignment

Consignment is simply offering goods for sale that you don’t own. The goods are provided to you on credit. The catch is that you pay for the product only when and if it sells. If it doesn’t sell you return the product to its owner. This works most often in retail establishments. An agreement has to be signed with the owner of the merchandise with the consignment terms. The business pays the owner a percentage of the retail price and retains a commission for the sale. The commission can be up to 40% of the retail price. The entire bookstore industry is set up on the consignment system. Bookstores have up to 90 days to pay for books and can return them up to one year if they don’t sell.