Guest Commentary

January 14, 2010
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Ease Cash Flow Crunches

Businesses dealing with groceries, basic drugstore items and other essentials are sometimes held up as “recession proof,” but anyone in retail knows otherwise. Every small business owner is faced with the general consequences of a recession, such as cash flow issues. When revenues are down, businesses need more time to pay debts, leading to potential cash flow problems for everyone involved. The following tips will help you take advantage of trade terms to help manage cash flow.

Understand trade term basics. Trade terms are an agreement between a company and its suppliers that define payment amounts and due dates, such as payment in full in 30 days. To encourage early payment, some suppliers include an incentive of 1 percent or 2 percent for customers who pay within 10 days. This discount is the equivalent of adding 1 percent or 2 percent to your markup. Some vendors also offer terms that permit delayed payment for when early payment isn’t possible. Under these terms, customers make a defined partial payment and defer the balance.

Actively pursue trade terms. Approach vendors to negotiate better terms, but recognize that not all vendors offer trade terms, and those that do are selective. Suppliers don’t want to take the risk of offering a discount to customers who will take the discount but pay late. Likewise, suppliers are cautious when extending deferment options, because doing so amounts to free short-term credit. Expect the most from companies with which you have the longest and best relationships.

Create opportunities. When you’re not successful in gaining trade terms, look at what makes your best customers valuable.You can use that knowledge to make yourself more attractive to vendors. Volume and regularity of business both are important factors. Consider consolidating business with one vendor, or look at formalizing a standing order with a vendor instead of ordering sporadically.

Seek alternatives. For situations where you still don’t qualify for credit, or where trade terms aren’t an option, using charge and credit cards that offer cash back or other rewards is one way of earning a discount. Another possibility is to use cards that offer trade-like terms. Also consider other non-cash payment methods such as bartering.

Keep credit records in order. Make it easy for vendors to confirm that you’re an established business by registering with commercial credit bureaus such as Dun & Bradstreet and the Small Business Financial Exchange. Also, protect your credit record by contacting credit bureaus to verify all credit information. If you do find mistakes or irregularities, address them immediately.

By minding cash flow today with proven tools like trade terms, not only will you help improve your business’s resilience in this down economy, you also will position yourself to take advantage of the many opportunities that will come when the economy rebounds.

Richard Flynn is senior vice president and general manager for American Express OPEN, issuer of card products for small business owners. American Express OPEN launched the Plum Card, designed to provide the benefits of trade terms in the transaction simplicity of a card. For more information, visit

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