Credit - An Important Part Of Your Business

Doing Business is simple? You get machinery, you get raw material, you manufacture, you sell. Simple. Or is it? 

In between these, you have overheads - mainly fixed. If you are manufacturing - you have to have place. Main overhead would be Rent, Labour/Staff payments, Electricity, and others. You have to manage these overheads. So, it is simple. You buy 100 worth material and sell it worth 150 and manage the overheads in that 50. Whatever is left is yours. It is not that easy though. Finance is an important part of business. In fact, very important. Even the best running businesses can fail if your finance is not good. By not good, I mean, if your cash flow is not good. 

Normally, you get raw material on credit and after manufacturing sell the material on credit. If both the credits match - say you get 45 days and you give 45 days, then most of your things are in balance. If you are big brand or company like Bajaj, then you get the raw material on credit, while you sell on advance payment. This makes you cash rich.

When you start anew, you have two main problems. You do not have history, so you do not get credit. Second, you are in need so you need to give credit. This increases your working capital needs. You can manage only limited turnover in the limited resources that you have. You need to work your way with your suppliers, with payment commitments that you need to honor. If you honor those commitments, a few months down the line your credit will be extended. Getting credit is very important as it is like you are getting a short term loan. Instead of going towards your bank, you can just rework your credit terms with your suppliers to get 15 to 30 days more. If you get that, consider that you have got a loan of that amount. Similarly, if you try to give cash discount for immediate payments, that may help you in generating more business and in turn more turnover in same resources. 

Extend your resources with honoring your payments to suppliers and keeping good quality & giving cash discounts to your customers. You may just do more within your limited resources.