Setting Up Contractor Trade Credit Accounts: Net-30 Systems for Building Supply Dealers

The Credit Application: Your First Line of Defense

Every contractor who wants a trade account must complete a written credit application before the first charge. Your application should collect: legal business name and entity type, federal EIN, physical business address (not a PO box), years in business, owner's name and personal guarantee signature, three trade references with contact information, one bank reference with contact information, and the requested credit limit. Do not skip the personal guarantee for any business under three years old — it is the primary protection when a contractor LLC folds and the owner walks away. Use a credit application template reviewed by a business attorney in your state to ensure the personal guarantee language is enforceable under your state's laws.

Credit Checking and Limit Setting

Before approving any credit account, run a business credit check. Dun & Bradstreet's PAYDEX score and Experian Business Credit are the two primary sources — a new business with no credit history will have no score, which is itself useful information. Pull the principal's personal credit for any business under two years or any account over $15,000. For the first three months of any new account, keep limits conservative: $5,000–$10,000 for a small subcontractor, $15,000–$25,000 for an established roofing company or GC, and up to $50,000+ for long-established accounts with verified trade references. Increase limits only after three to six months of on-time payment history. Never let outstanding balances exceed approved credit limits without a specific limit increase request and approval.

Billing Cycles and Statement Practices

Run a monthly billing cycle: all charges from the prior month are invoiced on the 1st of the new month, with payment due on the 30th (net-30). Send monthly statements by email or mail on the 1st showing the opening balance, all invoices, any payments received, and the current balance due. For active accounts, follow up with a statement by the 15th if payment has not been received. Most building supply software platforms — Epicor BisTrack, DMSi Agility — automate statement generation and aging reports. Set up email delivery of statements directly from the ERP so you are not manually sending dozens of statements each month.

AR Aging Management

Accounts receivable aging is the report that determines your business's financial health. Review AR aging weekly — not monthly. Any account 31–60 days past due gets a phone call from your office manager, not just an email. Any account 61–90 days past due gets escalated to the owner for a personal call. Any account over 90 days past due goes on credit hold immediately — no new charges until the past-due balance is paid in full or a payment plan is established in writing. Put aging thresholds in your employee handbook so every person who answers the phone knows the rules. The biggest mistake new building supply dealers make is letting a large contractor run 90+ days past due because they fear losing the account. You have already lost if they cannot pay.

Collections and Legal Remedies

When a contractor account goes seriously past due, you have several legal remedies beyond collection calls. In most states, material suppliers can file a mechanic's lien on the property where the materials were delivered — this is a powerful collection tool because the lien attaches to the real property and must be resolved before the property can be sold or refinanced. Lien deadlines are strict: most states require preliminary lien notices within 20 days of first delivery and lien filings within 90–120 days of last delivery. Miss the deadline and you lose lien rights. Consult a construction attorney to set up a lien notice system from day one — for high-value accounts, preliminary notices should be sent automatically on every project delivery. For smaller past-due amounts, small claims court (typically handles claims up to $10,000–$25,000 depending on state) is a viable and inexpensive remedy.

Credit Insurance and Bad Debt Reserves

For dealers extending significant trade credit — over $500,000 in total receivables — trade credit insurance from Euler Hermes, Atradius, or Coface provides protection against contractor insolvency. Policies typically cover 80–90% of approved invoice amounts for approved buyers, with premiums running 0.2–0.5% of insured receivables annually. For smaller operations, budget a bad debt reserve of 1–2% of annual credit sales and treat it as a cost of doing business. Many successful building supply dealers operate both: they credit-check all accounts, maintain conservative limits, send lien notices on large projects, and carry a bad debt reserve for the inevitable surprise insolvency.

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