When you’re establishing your business, vendor accounts can be a great resource for building credit. Also called “tradelines,” these function as small lines of credit which can be reported to credit agencies, helping you establish a strong business credit score.
Remitly is committed to showing business owners and immigrants how to manage their finances in the US as they are just getting started. In this article, we’ll break down Net 30 vendor accounts and take a look at how using them can help your business grow.
Net 30 vendor accounts that report to credit bureaus
A vendor account is a small line of credit that you establish with your preferred vendor. As we’ll see, “Net 30” is standard invoicing language for a payment that is due within 30 days. One thing that sets certain vendor accounts apart is that they report your payment history with them to credit bureaus. This reporting can provide a major benefit to new entrepreneurs looking to establish good credit early on.
Importance of Net 30 vendor accounts
When starting your business, one of the most important metrics that can impact your growth is your credit score. This can help or hinder your access to funding, whether that be through loans, credit cards, or other financial resources. Without a strong credit score, such options may be out of reach for your business.
This is where Net 30 vendor accounts come in. The idea behind a Net 30 account is that it provides you with access to necessary items now while preserving your cash flow by deferring payment for those items. As credit issued by the vendor is tied to product invoices rather than a credit card or a higher-value loan, Net 30 accounts can be an easy-to-access method for businesses to improve their credit profile.
How reporting affects business credit score
When vendors report your activity and payment history to national credit bureaus, you are effectively developing the first pages of your credit history. Early and on-time payments will help to raise your credit score. Of course, a higher credit score means that lenders will feel more secure in lending you money. Conversely, a lower score caused by late payments makes access to funding more difficult.
Understanding Net 30 terms
When it comes to Net 30 accounts, it’s important to understand how the terms of these agreements work. Net 30 refers to a specific 30-day payment schedule. You’ll also find that some key differences exist between Net 30 payments and other credit-boosting options such as business credit cards.
Defining Net 30 and vendor accounts
Technically, any invoice can be issued with “Net 30” terms. This simply means that the vendor is asking you to pay your outstanding invoice within the next 30 days. Similar payment schedules exist, such as Net 10 or Net 60 agreements. Discounts may also be available for early payment. For example, a 2/10 Net 30 invoice is an invoice for which payment is due within 30 days and which can be discounted by 2% if you pay in the first 10 days.
When reported by vendors to the credit bureaus, Net 30 invoices function as lines of credit. When you open an account with a vendor, they may ask to see some basic financial information to ensure that you can take on the debt. By reporting your information to credit bureaus, your vendor helps you establish a record of trustworthiness with national credit bureaus.
Differences between Net 30 accounts and business credit cards
While both Net 30 accounts and business credit cards are technically lines of credit, there are some slight differences.
- Payment in full: Net 30 accounts, by definition, are due in full by the end of the thirty-day window. This differs from a credit card, which allows you to carry debt forward each month up to a certain limit.
- Ease of access: Net 30 vendor accounts tend to be easier to access than business credit cards. As the limits are lower, vendors often have more flexible approval criteria for their borrowers compared to traditional lenders issuing business credit cards or loans.
- Vendor specificity: While business credit cards enable you to use your credit anywhere for any purchase, having a Net 30 account with a vendor will mean that you are limited to only those items offered by that vendor.
How to choose the right vendor
The first consideration when choosing a vendor is to identify those that sell the products your business needs. Once you have narrowed those down, the choice becomes more strategic.
Assessing credit reporting
Keep in mind that not every vendor will report your account to credit bureaus. Likewise, not every vendor will report to every bureau. Make sure you understand how and where your credit history with the vendor will be reported. This will make it easier to know where to check your business’s credit profile for any errors or updates.
Consideration of credit limits and terms
Different vendors will have different policies regarding their fees and limits. Before applying for an account, take the time to understand these policies to make sure that they align with what your business needs. Low credit limits may not get you the products that you need, and fees may outweigh the benefits of using the Net 30 structure to build credit history.
Examples of Net 30 accounts
With all of the Net 30 terminology and factors in mind, let’s take a look at four different vendors offering credit accounts and see how they compare.
Uline
Uline is a vendor offering a variety of shipping and packing materials for businesses. They offer a Net 30 account that has no fees and offers easy approval. Minimum order amounts start around $50. Uline reports to Experian as well as to other credit bureaus.
Creative Analytics
Creative Analytics is a service-based vendor that helps businesses with digital operations and strategy. Their Net 30 business accounts begin at $49 per month and offer a credit limit of up to $5,000. They report to Equifax Business. Creative Analytics will need you to have your EIN and DUNS number on hand as well as an up-to-date incorporation registration to sign up.
Grainger
Grainger specializes in industrial and safety equipment. Their Net 30 account activity is reported to Dun & Bradstreet. This means that you will need a DUNS number to apply. The minimum purchase to be reported is $50, and your initial credit limit will be $1,000. As your business grows and you show a strong history with Grainger, this limit could increase to $5,000.
Shirtsy
Shirtsy offers a wide variety of customizable apparel, decorative, and promotional products. Though their credit limit will vary based on your business profile, their fee sits at $99 per month. They report to a wide range of credit bureaus, working with Experian, Equifax, Dun & Bradstreet, and Credit Safe. Shirtsy charges no interest on Net 30 accounts, but they do charge a $15-39 fee for late payments.
Best practices for building business credit with Net 30 accounts
Though Net 30 invoicing is not intended to be strictly for building credit, it is certainly a useful tool for entrepreneurs who are working on establishing their credit profile to access future loans and funding. When using Net 30 to build credit, it’s important to maintain a strong payment history and keep a close eye on your credit profile.
Maintaining payment history
As with any credit line, on-time payment is key, but it’s the history that counts most. Keeping a positive, consistent payment history with your vendor is an excellent way to see your business credit score rise. It’s a good idea to keep your relationship with your vendor going as long as possible to show that you are a desirable borrower.
Monitoring changes in business credit profile
When using any kind of credit service like a Net 30 vendor account, it’s important to keep a very close eye on your credit profile. This allows you to spot potential issues before they occur so that your access to funding is not negatively impacted in the future. Make sure to carefully check for and dispute any data that seems suspicious or inaccurate.
Overall, Net 30 vendor accounts can be an excellent tool for new business owners to get the supplies they already need while building their credit history and profile. If you’re looking for additional ways to expand your credit, business credit cards may be a viable option for your business as well.
FAQs
Do all Net 30 accounts report to credit bureaus?
Unfortunately, not all Net 30 vendor accounts report to the national credit bureaus. Even those that do may have minimum reportable amounts, often around $50. If you’re looking for a Net 30 account to help build your business credit, make sure to ask them whether they report to credit bureaus, or check their terms and conditions carefully.
What are the three main credit reporting companies?
The three major consumer credit bureaus in the US are Equifax, Experian, and TransUnion. Dun & Bradstreet, Equifax, and Experian are the main credit bureaus for businesses.
What are some examples of data furnishers?
Data furnishers are the institutions and organizations that report your credit and lending activity to credit bureaus. These include banks, credit unions, credit card issuers, and even some Net 30 vendors.