Would there be some advantages to having some credit purchasing power for the business rather than just using?

Question

Would there be some advantages to having some credit purchasing power for the business rather than just using cash?

Answer 1

Absolutely. The ironic part of business is that many quality, profitable businesses, end up crashing for lack of ability to finance growth.

As the saying goes, banks only like to lend you money when you don't need it. So start getting to know some bankers, get a couple lines of credit going, and use them prudently. That way, as you go forward and hopefully expand your business, you have established relationships already in place. Maybe then they'll actually lend you money when you really need it.

Small business lending is still very much a relationship service. Many bankers will even help advise you on growth, refer you to other networking people who can help you grow, etc...

It could definitely be worth paying some small interest payments here and there now, for the ability to pay large interest payments on something truly valuable in the future.

Answer 2

Look at it this way.

If terms were 5% discount paid in 30 days, you are receiving 5% discount for cash.

With established credit, you can enjoy the same discount in 30 days.

Merchandise may/can be sold in that time and be paid from sales proceeds rather than capitol.
You could conceivably tie up all your capitol in inventory.
With proper planning, with credit, you are using the suppliers money to operate your business.

Aside, cash purchasing "does not" establish credit with other or new accounts.

Like any credit, it must be used wisely. Cash flow should not be over spent or drawn. Payables always need to be a consideration.