3 Ways to Improve Your Business Credit Score

12/11/2019

When it comes to credit scores, most people know how important they are to get approved for credit cards, mortgages and loans. So, you’d think most businesses are aware that they have a business credit score, right? Not necessarily. According to the Nav American Dream Survey, 45% of small businesses didn’t know they have a business credit score. What’s worse is that 72% didn’t know where to find information on their business credit score and 82% didn’t know how to interpret their score.

Just think about these stats for a second. This lack of awareness can have devastating consequences for businesses, especially if they need funding to keep their operations going and pay suppliers/vendors. If their business credit score is poor, then they could easily be denied for loans. Unfortunately, that could have a ripple effect on the business long-term – making it difficult to pay suppliers, damaging relationships with suppliers and being unable to pay employees’ wages.

If you ask me, saying ‘I don’t know’ just isn’t a good enough excuse for a business owner today. You need to be armed with the right information and as much data as possible to know the full extent of risks and how they could hurt your business. And if your business credit score is paltry (or putting your business in financial turmoil), then you need to whip it back into shape. To help you out, I’ll share three ways to improve your business credit score. 

Credit score
Chapter 1

Don’t leave it to guesswork – dig into your credit report

For some people, not knowing is a good way to avoid bad news. But businesses can’t afford to take that approach. If you don’t know your business credit score, you need to pull your own business credit report.

But don’t just look at your business credit score and think that’s all you need to do. There is so much more information that matters. For instance, you’ll want to know what credit limit is available to your company. You’ll also want to look out for any changes on your credit report. Make sure they’re correct. If they’re not, you’ll want to investigate, make sure the error is corrected so that your credit score isn’t impacted in the long term.

If you’ve been paying suppliers or vendors late, that will certainly impact your business credit score. What it says to those expecting payment from you is that you’re not reliable and your inability to pay on time could cause them cash flow issues. Being labelled as an unreliable business is the last thing you want to happen.

Chapter 1

Become known as a reliable, on-time payer

As I mentioned earlier, being a late payer is not only a reputation killer, but it can also damage your business credit score. So, put policies and practices in place to make sure that you don’t miss due dates for payments. Look at your business credit report to see how late you’ve been paying invoices. For instance, have you been paying between one and 30 days late, or are you falling much farther behind into the delinquent category (paying 90+ days late)? Do your best to resolve any late payments you might have so that those can be cleared off your account.

If you’re worried that you might fall behind on a payment, contact that vendor or supplier and see if you can work out a compromise – like extending the payment terms by another 30 days. That could give you some time to resolve your cash flow issues so you can pay that invoice not too long after its original due date. 

Credit report
Chapter 1

Use a ledger management tool to get the full picture of your financial health

One key reason why you might be paying invoices late is that your own customers aren’t paying their invoices on time. It’s a cyclical effect. If they pay their invoices late, that affects your own cash flow and your ability to pay your suppliers/vendors on time.

So, what’s the answer then? Technology. More specifically, you should use a ledger management tool to get the full picture of your company’s financial health. And make sure that this tool integrates with an international database of risk management. That is double the power and insights for your business.

By doing so, you’ll be able to see exactly which customers are in collections and can put a plan in place to get those payments sooner than later.

How will using a ledger management tool help you?

  • You’ll get the full picture of your customers’ payment patterns. That means you can spot gaps, create processes to get paid sooner and even make decisions to stop working with habitually late payers.
  • You can set more realistic payment terms to cut down on the amount and frequency of late payments.
  • Get a clear sense of where your debt is and where you can make changes.
  • Set up alerts to monitor when your cash flow falls below a certain threshold. That will help keep your cash flow healthy.

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