Vendor Credit Lines : Essential To Business Funds
Product suppliers often provide favorable credit terms to customer companies, which must honor purchase contracts in order to retain the vendors’ trust.
After struggling as an independent brick-and-mortar retailer in the early 1990s, Daniel Thralow in 1996 discovered the power of the Internet, which was then in its infancy. He set up a text-only site as an experiment to promote his sunglasses-only store in Duluth, Minnesota, and started getting orders from all over the country.
But Dan was getting about 10 percent of the sunglasses back from customers who didn’t like the product when they put the sunglasses on, so he added nonwearable products, such as binoculars and telescopes, which had a return rate of just 3 percent. By 1999, Thralow Inc. was selling $3.5 million in products, mostly through http://www.peep ers.com, http://www.binoculars.com, and http://www.telescopes.com, and made the Inc. magazine list of 500 fastest growing privately owned companies in America. Product suppliers were willing to give Dan merchandise and wait as long as 180 days to be paid without charging any interest.
“The dollar amount and length of time they extend varies,” Dan says, “but even a young company that can sit down with vendors and explain how it will sell product will get at least 30 days to pay for $3,000 or $5,000 in merchandise. And if you do well selling their product, there’s no reason not to increase the terms. We would not have grown as fast as we did without vendor lines of credit.”
Dan sold his company in 1999 for cash and stock in the buying company, which went bankrupt following the dot-com crash. In 2001 Dan got his company back along with a bad reputation among vendors who had not been paid.
“I had to fly out and visit vendors in person,” Dan says. “I offered to pay cash on delivery just to keep their products, and some still didn’t want to do business with me even though I reminded them that I had paid on time when I was in charge of the company.”
Dan had to establish new relationships with other vendors to wipe away the tarnished reputation and prove himself and Thralow Inc. worthy of vendors’ trust and lines of credit. Slowly he has been able to win back all the former vendors. Even so, some companies harbor hard feelings. “I order $1 million in product from one company, and they still sting from and bring up the $30,000 they were not paid in 2000. It is said that customers are golden, and they are. But your suppliers are just as golden. Some products sell themselves because of their brand name. You have to be good to those suppliers and keep your word.”
Thralow Inc. now has 25 employees. In addition to its own Internet retail sites, the company links its database of 33,000 products to 11 sites owned by others whose primary products complement Thralow binoculars and telescopes, such as outdoor clothing. Thralow Inc. provides the call centers and order fulfillment for these other sites, which maximizes the use of Thralow’s staff and warehouse space, multiplies sales, and helps control retail prices for the products. These other small Internet sites benefit from Dan’s success in rebuilding relationships with hundreds of vendors and rely on his ability to keep generous lines of credit with these vendors by delivering on his promises.