When you buy anything, you will either pay for it by cash or credit card. The seller would get the payment almost immediately. But in the materials market, things are different. Buyers expect credit from the seller, so they can buy now and pay later. This is common in the world of business, where companies expect credit from their suppliers.
If you are a trader and buying building materials, then you will expect financial credit to be given. The basic meaning of credit is that you can get materials to goods delivered without having to pay for them. You can make the payment later, as per the timeline agreed with the seller.
What is financial credit?
Financial credit is a term used in trade finance. It refers to an agreement made between a supplier and a customer where goods are supplied and payment can be made for them later. It is a financing method that is short-term in nature. Usually, the credit is given for 30 to 45 days, but may even be for 90 days or longer.
The supplier would supply materials required for construction, and they can be used in the work. 30 (or as per the agreed period) days after the delivery of goods, the payment has to be made. Prior to making the purchase, the supplier and the customer would have agreed on the payment terms.
Financial credit sounds like a risky proposition. The supplier accepts risks willingly in order to get business. This is common in B2B where credit is given to regular customers. The credit offered allows the customer to manage their finances better.
Benefits of financial credit to traders
For a supplier who supplies materials, there are many benefits of offering financial credit. These benefits explain why suppliers are willing to offer credit.
1) Helps to improve sales
When immediate cash need not be paid, customers would purchase more of materials. This helps to improve sales. This is beneficial for suppliers who can improve their business.
2) Helps in ensuring customer loyalty
Offering convenient financial credit is a great way of having a good relationship with customers. A customer would prefer to buy from a supplier who is flexible with financial terms. This can help in ensuring customer loyalty, which is vital for success in today’s competitive world.
3) Helps new businesses
If you are starting out new, offering advantageous credit terms is a great way to get orders. You can get a competitive advantage over others by offering credit at terms that customers like.
4) Can offer incentives for early payment
You can encourage your customers to pay up early. This can be done by offering a discount to those who pay early. For example, you would have been given a credit of 30 days. But you can offer a 10% discount if they pay within 10 days. This is a win-win situation for both you and the customer.
Risk vs benefit
While there is a risk of the customer defaulting, the overall benefits outweigh the risk. It is beneficial for both parties, which is why it is followed for the purchase of building materials.