Q&A with Apruve: How to Find the Right Trade Credit Solution for Your Business
Innovations in intelligent automation directly increase top-line growth. By revolutionizing credit processing and underwriting for faster approval, automation has transformed how trade credit works for businesses. If you’re looking for the best way to improve trade credit for your business, you’re in the right place.
We sat down with Michael Noble, Founder and CEO of Apruve, an A/R automation and invoice financing platform for large B2B enterprises. In this Q&A, Michael shares his expertise on how companies can use technology to extend trade credit, drive new operational efficiencies, increase sales, and improve cash flow management.
What Is Trade Credit?
Trade credit is a payment arrangement that allows customers to delay payments for goods or services.
While trade credit helps you attract and keep customers, it exposes your business to certain risks, such as late payments or – worse – not getting paid at all.
Allowing customers to pay on credit ties up working capital in receivables – this is the downside of extending trade credit. If your business can’t collect receivables on time, you may run into cash flow issues. Any business that wants to extend trade credit has to anticipate this scenario. So, finding the right B2B trade credit solution helps you offer net terms without running into a cash crunch.
What Difficulties Do Companies Run into when Planning to Extend Net Terms?
Companies struggle with trade credit administration and account receivable management when they offer net terms to B2B clients.
Trade credit administration usually involves a manual application process with a lot of paperwork. The steps involved are tedious and inefficient for both buyers and sellers. Additional challenges include:
- A lack of data about customers
- Higher default risk because of inexperienced credit management teams
- Manual monitoring of trade credit accounts
Companies also often struggle with accounts receivable management due to manual processes in invoicing, billing, payment reconciliation, and accounts receivable monitoring.
What Should Businesses Consider before Offering Trade Credit?
Ask yourself this question first – can your company underwrite buyer credit?
Understanding your customers and how trade credit works is essential to know if your business is ready to extend net terms. Considering these factors can also help your business determine if offering trade credit should get a green light.
- Will offering net terms support your business strategy?
- Can you handle the risks of extending trade credit?
- Is your cash position stable enough for in-house trade credit?
- Do you have the ability to screen clients to reduce the risk of not getting paid?
- What do you do if clients pay late?
How Can I Find the Right Type of Trade Credit for my Business?
If you’re sure that offering trade credit is the right choice, it’s time to choose the right type of trade credit for your enterprise. There are three types of trade credit: open account, promissory notes, and bill payable.
Which one is the right choice for your business?
Let’s start with the most informal arrangement – open account trade credit. Most small businesses offer this type of trade credit with almost no paperwork. You only have the procurement request sent by the buyer and the invoice containing the payment terms to support the transaction.
Next, we have promissory notes and trade credit. As the name suggests, buyers who pay using trade credit have to sign a promissory note. Arrangements like this happen when buyers with an open account trade credit ask for an extension to pay the amount they owe. Promissory notes put you in a stronger position to collect from buyers because you can seek immediate legal action.
Finally, we have bill payable trade credit.
Unlike the first two types of trade credit, we have three parties involved in this arrangement – you (the seller), the buyer, and the buyer’s bank. You have to send an instrument called a commercial draft to the bank. Then, the bank communicates with the buyer and requests that they accept the draft so you can go ahead and deliver goods purchased using trade credit.
Once the payment is due, you can collect the money from the bank. You can also demand the bank’s guarantee that the invoice will be paid on the due date. If the bank agrees, you will receive a banker’s acceptance, and you can sell this instrument to another company at a discount if you need cash right away.
Among the three types, bill payment trade credit is more advantageous since the bank takes on the default risk. If and when possible, choose a trade credit arrangement that gives you the same option as a bank guarantee, so you cash in on your receivables instantly if needed.
Apruve is Ready to Help You Find the Best Trade Credit Solution
Getting paid faster while extending net terms is a priority for large enterprises focusing on B2B transactions. Companies deserve a more affordable and flexible choice than invoice financing and factoring. Apruve fills this need.
Apruve combines automated trade credit and A/R solutions to digitize trade credit offerings and automatically manage your receivables. Designed with B2B sales in mind, Apruve simplifies trade credit approval with a Buy Now, Pay Later model so customers can choose trade credit as a checkout option.
Using Apruve, buyers get approved for trade credit in minutes, sellers reduce days of sales outstanding to one day, and both benefit from a global network of lenders. Automation reduces hiccups with both trade credit management and accounts receivable management.
Companies using Apruve can decrease headcount, reduce collection and underwriting costs, and have a stronger cash position. It’s a win-win solution for all parties involved.
Trade credit helps you expand your business, but extending net terms weakens your cash position and ability to sustain normal business operations. You can’t stay competitive without trade credit, but you can’t offer trade credit if you don’t have the tools to underwrite and assess credit competitively. Breaking free of this catch-22 situation is only possible with an effective trade credit solution.
Contact Apruve today to learn how automation helps you offer seamless trade credit with improved cash flow efficiency.
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