A business tradeline is a form of credit a specific vendor provides to a business owner. The business receives products or services while agreeing to pay for them at a later date. Many different vendors offer business tradelines as a payment option and will agree to receive payment at a later date.
Let’s dive into understanding business tradelines. Learn why business tradelines are important and how to establish business tradelines so that you can build your business credit.
Definition and Examples of Business Tradelines
With a business tradeline, a company can build credit with a specific vendor or supplier by receiving products or services. Then, the company will pay the invoice by the due date. Payment dates are at each vendor’s discretion. Repayment terms are typically referred to as “net” and usually range from 15 days (net 15) up to 90 days (net 90).
Business tradelines are an important tool for companies to use to establish strong financial relationships with vendors, suppliers, and lenders.
Business tradelines are different from business lines of credit or business credit cards, as the credit is not coming from a financial institution. Instead, it is coming directly from a vendor or supplier.
- Alternate name: Tradelines, vendor accounts, vendor tradelines, corporate tradelines, and trade credit
A beauty salon owner needs to purchase a variety of hair products and styling tools so that they can offer specific styling options to their clients. The owner opens a business tradeline with a vendor. The business tradeline will allow them to have the products or services immediately, then pay the vendor’s invoice by the due date.
Before applying for business tradelines, a business needs to establish its legal entity and business banking accounts.
How a Business Tradeline Works
Establishing business tradelines is important for the long-term growth of a company because it can establish business credit early and improve access to long-term funding.
Lexis-Nexis Risk Solutions reported that the average small business needs at least $10,000 in startup funding. In addition, 46% of business owners applied for financing in 2019, according to research and analysis from the Reserve Banks of the Federal Reserve System.
Business tradelines help bridge the funding gap by providing products and services that can, in theory, generate enough revenue to cover the bill that’s due down the road.
For example, a salon owner needs to purchase specific hair products but doesn’t have enough cash on hand to make the purchase. They research a vendor offering these products via tradeline and apply. Once approved, the salon owner can purchase products from the vendor using their credit. The vendor will issue an invoice to the salon owner, indicating the date payments are due. Traditionally, tradeline payments are due in 30, 60, or 90 days.
If you do not pay business tradelines by the due date, vendors and suppliers may report the information to a credit agency. Negative information such as late payments can impact your business credit standing.
Once the business pays the vendor, some vendors report the payment to business credit agencies of their choosing. If a business owner pays the tradeline on time, it will reflect well on their business’ credit reputation. Good credit may make it easier to work with other vendors, lenders, and suppliers offering tradelines.
Your business credit will fluctuate based on a variety of factors, including which credit reporting agency provides your score. For instance, Dun & Bradstreet’s Paydex determines its credit score based on a business's payment performance over time. Equifax bases its score on a company’s current and past credit accounts, public records, risk factors, and payment history. Experian’s Intelliscore Plus score is based on your personal and business data, and only includes information that third-parties report (it does not include tradelines you report to Experian).
- Business tradelines allow companies to receive goods and/or services from a vendor in advance of a payment due date the vendor chooses.
- An advantage of business tradelines is that it allows companies–especially startups–to build relationships with vendors and suppliers.
- Business tradelines are a form of credit that is reported to various business credit agencies such as Dun & Bradstreet, Equifax, and Experian.
- Companies should check their business credit often to make sure that vendors have reported their tradeline payment history correctly.