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Build and Maintain Stronger Relationships by Understanding the Benefits and Risks of Supplier Credit

Supplier credit is a common practice in a business where a supplier extends payment terms to a buyer, allowing the buyer to pay for goods or services later.


Supplier credit can be beneficial for both the supplier and the buyer.

Here are some of the benefits:

Improved cash flow

Supplier credit can help buyer manage their cash flow better, as they have more time to pay for the goods or services they receive.


Stronger relationships

Offering or accepting supplier credit can build stronger relationships between the buyer and the supplier. This can lead to more favorable terms in the future.


Increased sales

Offering supplier credit to buyers can increase sales for the supplier. Buyers may be more likely to purchase goods or services if they can pay for them over time.



However, there are also some risks associated with supplier credit:

Default risk:

The buyer may default on their payments, which can lead to financial losses for the supplier.


Interest charges:

Some suppliers may charge interest on unpaid balances, increasing the cost of the goods or services for the buyer.


Impact on credit rating:

If the buyer defaults on their payments, it can impact their credit rating and make it harder for them to obtain credit in the future.



To build and maintain stronger relationships while mitigating risks, it is essential to:

Establish clear terms and conditions:

The supplier and the buyer should clearly define the terms and conditions of the supplier credit arrangement, including the repayment schedule, interest rates, and any penalties for default.


Conduct due diligence:

Before offering supplier credit to a buyer, the supplier should conduct due diligence to assess the buyer's creditworthiness and ability to repay.


Monitor payments:

The supplier should monitor the buyer's payments and follow up on any missed payments promptly.


Communicate regularly:

Regular communication between the supplier and the buyer can help build a stronger relationship and identify any potential issues early on.



By understanding the benefits and risks of supplier credit and implementing best practices, businesses can build and maintain stronger relationships while improving their cash flow.

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