Every Net-30 invoice is an unsecured loan. Most distributors extend credit without a credit process, which means they are lending money based on vibes.
The Credit Application
Every new account should complete a credit application: legal business name and entity type, three trade references with contact information, bank reference for larger limits, estimated monthly order volume, and a signature acknowledging your payment terms. Follow up on trade references — call them. Ask: "Does [business] pay within terms?" and "Have you ever had to put them on hold?"
Setting Initial Credit Limits
Set the limit at one order cycle's worth of expected orders, or $1,500, whichever is smaller. After 60 days of on-time payment, review and adjust upward. For accounts pushing for higher initial limits, ask for a personal guarantee or partial prepay on the first two orders.
The Script for Moving an Account to Prepay
"Hey [First Name], we've noticed your payment timing has shifted over the last couple of months. We want to keep things working smoothly. For the next 60 days, we're going to move your account to prepay — you pay before we ship. Once we're back on track, we revisit. This is not about the relationship, it's just how we protect our end so we can keep delivering consistently for you." Key elements: factual, not accusatory. Specific time horizon. Clear path back.