If you are a small business with solid vendor relationships and you’re looking for a good way to stretch payables, consider using trade credit.

Simply put, trade credit means that you purchase goods or services from a vendor who finances the purchase by delaying the date at which the price is due or allowing installment payments (typically net 30-, 60- or 90-day terms), often with no down payment or interest. It can take the form of a delayed payment for purchases, sales on consignment, equipment loans or a variety of different options to assist you in financing inventory and other purchases.

It allows you to use cash on hand to market and grow the business while waiting for money from sales or customers you’ve extended terms to before they pay their bills.

In most cases, your personal credit won’t come into play. You should also ensure that your trade credit agreement complies with all state and federal agency regulations, such as licenses and permits, as well as complying with the lending market requirements

Lenders, including those granting trade credit, want to know you are a legitimate business and will verify that through several third-party sources, including simple steps like calling directory assistance to see if your business phone is listed. When creating a trade credit agreement, review it with your lawyer to make sure the terms both serve your business and keep you and the vendor in compliance with all regulations.

One note: When vendors are exploring the possibility of granting trade credit, they’re not going to be as concerned with your overall debt as they will with your ability to pay your debts from cash flow. So if you can show them realistic cash flow projections and a solid cash flow history, it helps a great deal.

Like any credit, trade credit needs to be managed properly: Don’t use it when you don’t need it. There’s also a trade-off in using trade credit: A higher up front purchase price and loss of access to any early-payer discount programs a vendor might offer. But if you need to hang onto your cash to grow and operate the business, it makes sense.

Source: Wells Fargo Small Business & David Gass, President & CEO, Business Credit Services, Inc.