Whether you’re a seasoned contractor with a vast client base or a budding entrepreneur, cash flow management is a crucial aspect of your business. But it doesn’t have to be a daunting task. Understanding your financial options is a necessity. Financing tools such as lines of credit, credit cards or credit from your supplier can significantly assist you in navigating the ups and downs of the contractor cash cycle. These options put you in control of your finances, allowing you to manage your business more effectively. It’s essential to note that many financing options are contingent on your reputation and credit history, which determine your creditworthiness, the available credit and the interest rate.

As a contractor, your ability to thrive in the market and expand your business is not solely about delivering exceptional work to your customers. It’s also about effectively managing your finances in the background. While cash forecasting may sound intimidating, it can be a potent tool with the proper steps and planning. Many credit options offer a safety net in times of financial uncertainty. ABC Supply’s Customer Financial Services (CFS) is here to guide you in selecting the one that best suits your unique requirements and provides economic security.

Credit for Contractors: Analyzing Your Options

Supplier Trade Credit

Acquiring the necessary materials without immediate payment can be a game-changer as you await customer payments. Supplier trade credit allows you to purchase the building materials you need from a supplier without paying for them upon delivery. This arrangement enables you to complete the job and collect from your customer before your invoice is due to the supplier, effectively managing your cash flow.

Terms vary by market and credit history. Based on your terms, you can plan your cash flow to ensure you deliver the product, finish the job and collect from your customer in time to pay your invoice. By making payments on time, you’ll avoid fees and surcharges.

Like other forms of credit, trade credit can vary based on your reputation and credit history. Trade credit is most often offered to contractors with whom a supplier has a solid, longstanding relationship, so it may be more challenging to attain for new businesses. However, new companies have other options to obtain and build credit. One of our most popular options is our job account program. Once you build a solid payment history with suppliers, those relationships can pay dividends by giving you even more buying power in the future. This potential for growth and increased buying power should inspire optimism about your business’s future.

Bank Line of Credit

A line of credit is another financing option if you need extra spending capacity. A line of credit — also referred to as LOC — is an arrangement between a bank and a customer for a predetermined borrowing limit. One advantage of an LOC is that it’s always available to you; as long as you keep paying down the debt, you can draw from the available credit repeatedly and pay it back immediately or over time. And much like a credit card, you only pay interest on the credit you use. You won’t accrue interest if the outstanding balance is zero.

Some lines of credit are backed by inventory or real estate but are not required. However, without an asset to back the LOC, contractors typically must show six months of solid financial activity and a credit rating.

A bank line of credit can be ideal for short-term cash needs, such as buying materials early for a large project, providing overdraft protection or providing additional payroll to finish a job before the draw schedule.

Business Credit Cards

Like a line of credit, business credit cards give contractors short-term, immediate access to capital. However, this typically comes at the cost of high interest rates and vulnerability to extending beyond the amount you can comfortably repay.

The monthly payment cycle of credit cards can work to your advantage if you stay diligent about paying bills as they’re due. Doing so will build up your credit, eventually leading to more extensive lines of credit with a lending institution or a larger trade credit limit with a supplier.

However, those benefits come with significant risks if you spend beyond your means. Credit cards have higher interest rates than trade credit or bank lines with shorter billing cycles than your project’s draw cycle. Therefore, your payments won’t come in frequently enough to pay the credit card bill. The resulting penalties from high-interest rates are a significant drawback if they do occur. Additionally, some credit companies may charge a surcharge for using their credit card, so be aware of added fees when using this payment option.

How ABC Supply’s Trade Credit Options Can Help Transform Your Business

 Through its Customer Financial Services department, ABC Supply helps customers find the financing options they need to stay competitive in the marketplace and grow their businesses, such as:

• Competitive credit lines that can be tailored to grow with you.
• Competitive payment terms that span the right length of time for you to complete the job and collect from your customer.
• Lien services that provide notices to owners and timely waivers when needed.
• Online account management to view and pay invoices/statements, set up automated payments and manage open balances.
• Job account program for large projects that increase your purchasing power with ABC Supply.

ABC Supply knows that as your business grows, your financial needs change and you must adapt. With more growth in your business comes a need for more purchasing power. An experienced CFS team member will sit down with you to discuss your goals and develop a financing plan that perfectly fits your needs and vision.

If you are looking for a financing solution to help manage your cash cycle, ABC Supply’s CFS team is here to help. Fill out an application today to get started!