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TheStreet Open House

Trade Credit Often There for the Asking

Stocks in this article: AXP EFX

NEW YORK ( TheStreet) -- "Buy now, pay later" is a tactic retailers use to attract consumers.

Trade credit, or vendor credit, is the business-to-business take on that strategy, letting owners finance the purchase of supplies, merchandise, even equipment, typically between larger businesses and suppliers.

Trade credit, or vendor credit, could be a good financing alternative for small businesses.

What small-business owners may not know is that trade credit is probably available to them if they just ask for it.

"Smaller businesses generally haven't been aware that it's really there. It's something that I recommend to small businesses to explore when they're looking for financing," says John Seelinger, a business counselor with SCORE, a nonprofit association geared toward educating and helping small-business owners with their businesses. SCORE is a partner to the Small Business Administration.

Since bank loans are still hard to come by, despite more banks opening the spigots for small-business lending, trade credit could be a good alternative. It is generally cheaper and easier to get. Suppliers will likely require a credit check, but the agreements are usually not collateralized.

In the down economy, suppliers are "looking for sales too, and they're more interested in moving their merchandise," Seelinger says.

Industries in which trade credit is popular includes agriculture, automotive, construction, electronics, health service providers, medical equipment, manufacturing and retail, experts say. Recipients are often small businesses whose cash flow could vary significantly from month to month.

"Don't be shy to approach it with your supplier," Seelinger says to the owners of such businesses. So long as there is a good relationship between owner and supplier, they could be happy to provide trade credit -- typically short term, usually 30 to 60 days, but sometimes longer for heavy equipment or machinery. Terms are typically interest free for short-term arrangements, and some suppliers could even be amenable if the business owner needs more time to sell the goods.

At times suppliers will encourage early payment with incentives, such as discounts for invoices paid within a certain time, experts say.

"Cash flow is everything in a small company, so it's worth looking at anything that can help with that," says Alice Bredin, a small-business advisor to American Express' (AXP - Get Report) OPEN network.

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