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B2B credit
Credit is an important part of finances. A good credit score and credit history helps open doors to you and allows you to get more credit, but poor or no credit can be harmful and difficult to repair or obtain.
But it's not just consumers who need to establish and maintain good credit. Businesses need it as well.
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Business credit is often needed by businesses if they are going to buy goods or services from another business (when one business sells products and services to another business, this is called business to business.).
Business to business credit is very common and works something like this:
- A business needs to purchase products and services from another business in order to complete the orders they have to sell to consumers.
- The business sells them the products or services they need to fill the order on credit with the understanding that the payment for the products will be made by a certain amount of time (usually anywhere between 30 and 90 days)
- Once the company who bought the goods on credit sells their product, the payment is made to the company they purchased things on credit from.
As a business uses this type of credit more and more, their business to business credit gets established and they develop a reputation of having good business credit. However, if a business fails to make their payment within the amount of time specified, their business credit worsens and they will find it difficult to obtain business credit from other businesses in the future. Not only that, but depending on the contract, you may have to forfeit shares or portions of your business to the business extending you credit if you fail to pay your balance.
Business to business credit is a win-win situation for both parties. The business incurring the credit has a more secure cash flow and now has the means to fulfill big orders without having to come up with the money upfront; instead, they can repay their business creditor (plus interest). If you are using business credit, your credibility will be built up much faster than it would if you were a consumer trying to establish credit.
In addition to using business credit, there are instances in which you may need to extend business to business credit as well, especially if you are more established as a business and can afford to provide your products and services on credit.
Business to business sales are also a great way to make sales and add to your profit, for a number of reasons, including:
- Orders placed by other businesses are generally for the purpose of filling their own orders, so the orders are quite large, which means more profit for your business.
- More often than not, the business or organization you are selling to has (or will have, once the order is sold) plenty of money to pay off any credit they may incur from your business.
- As a creditor, your business will gain interest on the investments made to the company you are extending business credit to.
Business to business credit is a very common way to extend and receive credit from other businesses. A business to business credit relationship is beneficial to both the creditor and the business receiving the credit and can help boost sales and profits on both ends.
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