How to Build a Trade Credit Program for LED Therapy Wholesale Buyers
A wholesale buyer asked for Net-30 terms. We said no — we’d never offered trade credit before. They bought from a competitor who offered Net-30. We lost a $12,000 order because we didn’t have a trade credit program.
Trade credit (deferred payment terms) is standard in B2B. If you don’t offer it, you’re losing deals to competitors who do. Here’s how to build a trade credit program that doesn’t destroy your cash flow.
The Trade Credit Basics
Trade credit = “buy now, pay later.”
| Term | Meaning | When Payment Is Due |
| Net-15 | Payment due in 15 days | 15 days after invoice date |
| Net-30 | Payment due in 30 days | 30 days after invoice date |
| Net-60 | Payment due in 60 days | 60 days after invoice date |
| 2/10 Net-30 | 2% discount if paid in 10 days, otherwise full amount in 30 | Incentivizes early payment |
| COD (Cash on Delivery) | Payment before or at delivery | Before shipment |
| Advance payment | 100% before production | Before production starts |
The standard in LED therapy wholesale: Net-30 for established buyers, 50/50 (50% advance, 50% before shipment) for new buyers.
The Credit Evaluation Framework
Don’t offer trade credit to everyone. Evaluate creditworthiness first.
| Evaluation Factor | How to Verify | Pass Criteria |
| Business existence | Business license, registration | Verified business, ≥1 year old |
| Credit history | Credit report (Dun & Bradstreet, local equivalent) | No major delinquencies, Paydex ≥ 70 |
| Financial stability | Audited financial statements (if available) | Positive net income, current ratio ≥ 1.2 |
| Trade references | References from 2-3 suppliers | Positive payment history |
| Order size | First order ≤ $5,000 on credit | Limit exposure on new accounts |
| Payment history with you | Track record of on-time payments | 3+ on-time payments → increase credit limit |
The credit application form:
| Field | Purpose |
| Business name, address, registration number | Verify legal existence |
| Business type (corporation, LLC, partnership) | Understand legal structure |
| Years in business | Established businesses are lower risk |
| Annual revenue (self-reported) | Assess capacity to pay |
| Trade references (3 suppliers) | Verify payment history |
| Bank reference | Verify banking relationship |
| Personal guarantee (for small businesses) | Personal liability if business can’t pay |
The personal guarantee: For small businesses (revenue <$500K), require a personal guarantee from the owner. This makes the owner personally liable for the debt. It significantly improves collection rates.
The Credit Limit Structure
Don’t give unlimited credit. Set limits based on credit evaluation.
| Buyer Type | Credit Limit | Payment Terms | Conditions |
| New buyer (first order) | $2,000-5,000 | 50/50 or Net-15 | First 2-3 orders |
| Established buyer (3+ on-time payments) | $10,000-25,000 | Net-30 | Review annually |
| Premium buyer (12+ months, $50K+ annual) | $50,000-100,000 | Net-30 or Net-45 | Review semi-annually |
| High-risk buyer | $0 (COD only) | COD | Failed payment history |
The credit limit increase path:
| Milestone | Credit Limit Increase | Payment Terms Improvement |
| First order (on time) | $2,000 → $5,000 | 50/50 → Net-15 |
| 3 orders (on time) | $5,000 → $15,000 | Net-15 → Net-30 |
| 6 orders (on time) | $15,000 → $30,000 | Net-30 (unchanged) |
| 12 months, $50K+ annual | $30,000 → $50,000+ | Net-30 → Net-45 (if requested) |
The Invoicing and Collection Process
Good invoicing processes prevent late payments.
| Step | Action | Timing |
| 1. Invoice immediately | Send invoice on shipment date | Day 0 |
| 2. Invoice reminder | Friendly reminder before due date | Day 25 (for Net-30) |
| 3. Due date reminder | “Payment due today” | Day 30 |
| 4. Late notice (Day 1-7) | “Payment is X days late” | Day 31-37 |
| 5. Late notice (Day 8-30) | “Please remit payment immediately” | Day 38-60 |
| 6. Collections referral | Send to collections agency | Day 61+ |
The 2% monthly late fee: Include a late fee clause in your credit terms. “Payments more than 7 days late are subject to a 2% monthly late fee.” This incentivizes on-time payment. Enforce it consistently.
The collections agency: For debts >90 days late and >$1,000, consider a collections agency. They typically charge 20-30% of collected amount. It’s better than writing off the debt entirely.
The Cash Flow Impact
Trade credit affects your cash flow. Model it before offering terms.
| Scenario | Cash Flow Impact | Mitigation |
| Net-30 to all buyers | 30-day cash flow gap | Factor receivables, or use PO financing |
| 50/50 to new buyers | 50% cash upfront | Reduces cash flow gap |
| $50,000 credit limit × 10 buyers | $500,000 in receivables | Monitor aging report weekly |
| 5% of buyers are 30+ days late | $25,000 in late payments | Tighten credit terms for late payers |
The aging report: A report showing how many days each invoice is outstanding. Review it weekly.
| Aging Bucket | Action |
| 0-30 days | Normal |
| 31-60 days | Follow up |
| 61-90 days | Strongly follow up, consider collections |
| 90+ days | Write off or send to collections |
What We’ve Learned
1. Saying no to Net-30 cost us a $12,000 order. The buyer bought from a competitor who offered Net-30. We implemented a trade credit program 3 months later. The $12,000 lost order was the cost of learning.
2. The personal guarantee improves collection rates by 40-50%. Small businesses are higher risk because they can dissolve and re-form easily. A personal guarantee makes the owner personally liable. It changes their incentive to pay.
3. The aging report is your early warning system. We review it weekly. If a buyer has an invoice in the 31-60 days bucket, we follow up immediately. This prevents 90+ day delinquencies.
4. Net-30 is standard, but Net-45 or Net-60 should be rare. Only offer Net-45 or Net-60 to premium buyers with 12+ months of on-time payment history and $50K+ annual volume. The cash flow impact of Net-60 is substantial.
5. PO financing bridges the cash flow gap. If you have $200,000 in Net-30 receivables and need cash to produce the next order, PO financing advances you 70-80% of the receivable value. Cost: 1-3% per month. It’s expensive but keeps production running.
Building a trade credit program for LED therapy wholesale buyers requires a credit evaluation framework (application form, credit check, references), a credit limit structure that increases with payment history, clear invoicing and collection processes, and cash flow modeling to ensure you can sustain the deferred payments. Start with 50/50 terms for new buyers, move to Net-30 after 3 on-time payments, and use a weekly aging report to catch late payments early. The $12,000 order we lost by not offering trade credit taught us that it’s not optional in B2B — it’s table stakes. Build the program before you need it, not after you lose a customer.