Small business owners agree that cash flow management is one of their top concerns. In fact, poor cash flow management is one of the main reasons many small businesses fail. Actively managing the business credit can help small businesses improve their cash flow in many ways: by securing financing at better terms, getting supplies at affordable terms, making smarter credit decisions, protecting against business ID theft, and even attracting new customers.
Here are some simple steps you should take to manage your business credit:
- Find out whether you have a business credit file – You should first know if your small business has a business credit file. There are several credit bureaus that collect data and create business credit scores. These include Dun & Bradstreet, Experian and Equifax. Since you never know which credit bureau your vendors, creditors, potential customers, or financial institutions will check, it is smarter to maintain your business credit file with all the three.
- Establish a business credit history – If you are one of those small business owners who use their personal credit and finances to get their business going, once your business is off the ground, start establishing a credit history of your small business by having and using a commercial bank account to pay your business bills.
- Be selective in selecting your suppliers and lenders – All else equal, select the suppliers and lenders who report your transactions with them to credit bureaus. Establishing tradelines with such suppliers and borrowing money from such lenders will greatly enhance the credit history of your business when you pay them on or before time.
- Pay bills on time – and understand other factors influencing your credit rating – The most important thing you can do to improve your business credit score and build a positive payment history is to pay your bills on time. Therefore, be sure to have a very good cash forecasting system in place, to ensure you always have enough cash to pay your bills when due. While payment behavior is important, it is not the only factor that your credit rating is based on. Your credit rating is based on multiple factors such as your industry, revenues, the number of employees, etc. Learn about the factors that can be controlled by you, which were considered as the main factors in determining your credit rating, and work judiciously to improve those.
- Monitor your business credit file and keep it up to date – By monitoring your business credit file regularly (at least once a month), you will become aware of any change in your credit rating before it affects your relationship with vendors, creditors, potential customers, and financial institutions. You should keep your credit file current and accurate, reflecting changes such as location, number of employees, outstanding suits/liens, and revenue – all of which affect your business credit rating. Ensure that those looking at your business credit are making their decisions based on complete and accurate information.
Having a good business credit rating is essential in improving your cash flow and ultimately leading to your business success. Work diligently in establishing and managing your business credit.