Most smaller retailers work with dozens of brands and other suppliers—for everything from inventory to packaging. Your relationship with your brands can have a significant impact on your bottom line, particularly when it comes to timing payments. You want to stretch out payments as long as possible, while your supplier would prefer to get paid up-front.
It’s always a good idea to research the supplier to understand their payment terms before you agree to work with them. But know also that the payment landscape is changing. Today, retail buyers have a broad array of payment options available to them—many of which are game-changing.
Here’s a close look at some of the common ways you can settle your account, plus some new breakthroughs in payment processing that are shifting the status quo to the benefit of small business owners.
1. Cash or Check
Just about everybody takes cash. However, to pay by cash you need cash on hand. This is often problematic, particularly if you’re buying inventory which you won’t realize revenue on for some months. Cash simply doesn’t make sense for large orders. Checks are also widely accepted for most types of payments. Over half of B2B payments are still made with checks. If you’re still sending paper checks in the mail, though, you’ve probably experienced the downside that they can be hard to track and easy to lose. They’re also tough to place on your balance sheet since you never know when the check might be cashed.
2. Credit Cards
Credit cards are a convenient and attractive option. Payments are flexible and rewards points provide a bonus. However, a higher credit score is generally a prerequisite for a business credit card (essential if you want to maintain separation between your personal and business finances). Furthermore, not every vendor accepts this form of payment due to the 3-5% processing fees.
3. Online Payment Platforms
If your shop already uses payment platforms like Stripe or Bill.com, then you’ll appreciate the upside that these tools provide. They’re convenient, quick, and cost-effective. They also sync with your accounting platforms, making it relatively easy to maintain records.
However, the online payment market is fragmented and the chances that all your suppliers use the same tools are low. If they do, it’s unlikely that they’re using the same payment platform as your business—so you may need to look at using another payment method.
4. Trade Credit
As a buyer, you need goods delivered promptly to meet customer and seasonal needs. But you also want to spread out the payments so that you’re not left with a cash flow problem.
To address this need, suppliers often extend trade credit to retailers giving them a predetermined period of time to pay for the goods, typically net-30, net-45, or net-60 days (that is, payment in 30, 45, or 60 days, respectively).
Today, 60% of small businesses use either formal or informal systems of trade credit to finance their operations, making this the second most popular form of small business financing. However, suppliers may hesitate to give trade credit to new businesses that don’t have a track record of paying debts. If you do decide to use trade credit to finance an order, it’s ideal to have adequate cash reserves on hand. That way, you’ll still be able to settle your debts if business slows down. Also, try to negotiate an early repayment discount. If you can’t get a fair rate at the onset, suggest revisiting the terms in a few months once you have a track record of payments in place.
Payment trends are transforming rapidly
As you start to research your payment options, you’ll find that there are more and more platforms coming online every day. Many of these tools are designed with the specific goal of helping small businesses control cash flow, reduce friction during the payment process, and improve their relationships with suppliers. These digital credit offerings also help small retailers who may not qualify for trade credit from their suppliers who lack a track record of paying off debt or who have poor credit scores. For example, new technology-driven credit solutions allow you to take up to 60 days to pay your suppliers regardless of your credit history, while buyers get paid right away. This creates a win-win for both you and your brands.
This changing landscape also extends to B2B e-commerce payments where credit can be offered by a merchant and received at the point of sale by a seller, in a matter of minutes. Payments generally go to merchants right away, while buyers can apply for 30, 60, or 90 day net terms or, in some cases, pay a flat fee to get even more extended terms. This is a new form of payment processing is a particularly important development in body-mind-spirit retail sector, which is filled with small retailers providing specialized offerings. With these credit solutions, you can now stock your shelves with products your customers love, with the confidence that you can spread out your payments over time, unlock cash flow, and maintain good relations with your suppliers.