Supplier terms and trade credit: funding that comes from your suppliers

Of all the alternatives to a bank loan, the oldest is also the one most owners underuse: asking suppliers for time. Every week a supplier lets an invoice sit is a week of free funding. It isn’t glamorous, it doesn’t involve forms or lenders, and used well it may be the cheapest money in your business.

What is supplier credit?

It’s an arrangement where a supplier delivers goods or services now and lets you pay later, according to agreed terms. Typical terms range from a couple of weeks to a couple of months, and some include a discount for paying early.

Suppliers do this because credit wins and keeps customers. They’re not lenders in a formal sense, but they are taking a credit risk, so they apply some of the same thinking.

What does a supplier look at?

• Your trading record, including how long you’ve been in business.
• Trade references from other suppliers who have extended you credit.
• Your payment history with them, if you already buy from them.
• Your size and growth. A fast-growing buyer of steady volume is valuable.
• Security or guarantees. New accounts sometimes require a director guarantee, a deposit or a limited starting limit.

How do you open and build supplier accounts?

1. Start small. A modest limit paid on time is worth more than a large one stretched.
2. Apply with references. Prior trade references speed things up.
3. Pay on the due date. Not early, if cash is tight, and never late. A clean record is your currency.
4. Review the limit after a few months and ask for more.
5. Concentrate purchases with a few key suppliers to give them a reason to back you.

Tactic	What it does	Watch for
Longer payment terms	More days of free funding	Suppliers may price in the extra time
Settlement discount	Rewards paying early	Only worth taking if you have the cash
Seasonal dating	Pushes payment past your peak	Needs a supplier who understands your cycle
Consignment	You pay as goods sell	The supplier keeps ownership until sold
Higher limit	More room to buy	Limits can be cut if you pay late

Illustrative example only. A garden centre buys most of its plants from three nurseries. Rather than borrowing for the spring peak, it asks each nursery to date its autumn deliveries to be payable in late spring, once sales are flowing. The nurseries agree because they are guaranteed the volume.

What do you need to hand over?

1. A credit application with your ABN or ACN and trading details.
2. Trade references from other suppliers.
3. Possibly a director guarantee or deposit for a new account.
4. A forecast of expected volumes, which helps with limits and seasonal dating.

business.gov.au has practical guidance on payment terms and invoicing in the other direction, which is useful for understanding how your own customers’ terms interact with what you owe suppliers. When your terms to suppliers are shorter than your terms to customers, you have a gap that needs funding somewhere else. Tell us about the gap and a specialist can say which route plugs it.

What are the trade-offs?

Limits are small at first. Supplier credit rarely covers a big one-off need.

Late payment has teeth. Late fees, lost discounts, a frozen account and, in the worst case, a claim over the goods.

Retention of title. The PPSR explains that suppliers can register their interest in goods they’ve sold on retention-of-title terms. Until you’ve paid, those goods may not be fully yours, which affects what other funders will lend against.

Relationship risk. A supplier who feels squeezed may tighten terms across the board.

Personal guarantees. Trade accounts sometimes carry them. Read before you sign; see director guarantees.

How do you approach a supplier to ask for better terms?

Come prepared and be specific. Know your volumes, your payment record with them, and what you want: a longer period, a higher limit or seasonal dating. Offer something in return that costs you little, such as consistent ordering, a standing order or paying small invoices promptly. Suppliers respond best to a customer who is clearly planning, because planning predicts payment.

Timing helps too. Ask when your account is in good standing and after a strong season, not in the middle of a late payment. A calm request with a clear plan is much more likely to succeed than an urgent request with no detail.

What if a supplier tightens terms on you?

It happens, often because of something outside your control, such as the supplier’s own financing being squeezed, or because your payments have slipped. Respond by talking to them early, offering a plan, and prioritising their payments if they are critical to your trade. Meanwhile, line up a second supplier and a fallback source of funding, so one tightening does not stop you trading. Spreading your purchasing across suppliers makes you less vulnerable to any single change.

When is supplier credit the wrong tool?

• When you need a large sum quickly, since supplier limits won’t stretch that far.
• When your customers pay faster than your suppliers do, meaning you already have a surplus and no gap.
• When you’re buying equipment, which suits asset finance.
• When your biggest need is wages and tax, which suppliers can’t help with.

For a fuller picture of how supplier credit sits among the other routes, see our guide to funding a business without a bank.

Is supplier credit enough, or do you need more?

Start with what your suppliers can do; ask for it. If it doesn’t close the gap, we can help with the rest. The enquiry takes about a minute, involves no credit check, and doesn’t send your details to a crowd of lenders. A real person reads it and calls you. Accurate answers about what you buy, what you owe and when customers pay help us match you properly the first time. See if you qualify.