Maintaining good business credit is essential, as a bad credit rating may severely hinder your business growth and expansion. Without good business credit, banks can be less likely to accept your loan applications. Operating without loans can have significant impacts on your cash flow and working capital and does nothing extra to build your business credit.
In addition, if you skirt your financial responsibilities, it’s unlikely that suppliers will extend your business a trade or credit account. That means that you may lose the ability to leverage the 30-, 60-, and 90-day terms of invoices as short-term loans. In addition, many businesses enjoy discounts provided by suppliers to encourage prompt payment; cash customers usually do not get such discounts.
If your business does not have good credit, you can take steps to repair it. The first step to building your business credit is to contact your creditors to set up payment schedules. Such schedules should be reasonable and fair to both your business and the creditor. If you have some history of paying bills promptly, you may find that creditors are willing to set up alternative payment schedules. In addition, successful completion of a payment schedule often leads to a continuing relationship between businesses and creditors.
Late payments or unpaid invoices can often be traced back to housekeeping or paperwork issues rather than cash flow problems. Even these types of mistakes can affect your business credit.
To determine the root cause of the problems ask yourself:
- Are your creditors sending invoices to the correct address and person?
- Are your payment checks being sent to and received by the correct department and person?
- Are all parties clear on when payments must be made?
Additionally, listed below are steps you can take to improve your business’s creditworthiness:
- Always pay on time. The ability to repay loans promptly has a great impact on business credit scores. You should endeavor to always pay within the terms you have with your suppliers. On-time payments are the most direct way to improve a business credit rating.
- Pay your biggest bills first. Some business credit scores are dollar weighted, such as the PAYDEX ® Score. Therefore, if you are consistently paying all of your smaller bills but neglecting your largest, your Paydex score can suffer.
- If timely payments to suppliers and lenders are not included in your business credit profile, your business may not get the credit it deserves for paying your bills on time. You should monitor your business credit profile at least twice per year to ensure that vendor payment relationships are included.
- Stay on top of your business credit profile. You must ensure that your business credit profile information is complete and accurate. Address any inaccuracies immediately. Certain business credit companies offer customer services and online tools that can help you update and manage such details.
- Contribute to your company’s credit profile. You can communicate to the credit bureaus as well. The more information you give to credit bureaus like D&B, the more robust your business credit profile will be. In addition, try to choose suppliers and vendors that report their experiences to credit bureaus, which can also boost your profile.
Many businesses are feeling the pressure of tightened credit requirements. However, by carefully planning and executing your plan, you can help fix and improve your business credit.
The information and opinions provided by Dun & Bradstreet Credibility Corp. is provided "as-is" and are solely those of Dun & Bradstreet Credibility Corp. Dun & Bradstreet Credibility Corp. makes no representations or warranties, express or implied, with respect to such information and the results of the use of such information. Neither Dun & Bradstreet Credibility Corp. nor any of its parents, subsidiaries or affiliates shall be held liable for any damages, whether direct, indirect, incidental, special or consequential arising from or in connection with a business's use or reliance on the information or advice offered by Dun & Bradstreet Credibility Corp. You should consult a qualified professional to assist you in determining the most effective business structure for your particular business.