How to Improve Your Business Credit

July 11, 2018

Like a personal credit score, a business credit score is a significant indicator of the financial strength of a company. Lenders and potential customers look at business credit scores and use them in their decision-making process. If your company is a startup, or been in business for years, knowing how to improve your business credit is helpful and vital to the success of your company. With excellent business credit, you can get access to the capital you require, lower borrowing rates, get favorable terms on purchases, and build a financially secure business. The following steps can guide you on how to improve your business report.

Keep Your Business Profile Updated

The top three business credit reporting agencies are Dunn & Bradstreet, Equifax, and Experian. It is a good practice to routinely check your business profile with each of these agencies. Any changes to address, business structure, leadership, or other relevant information should be kept current. A profile which is maintained regularly is a good foundation on which to build your business credit.

Review Your Business Credit Report

Numerous companies offer credit reporting. These companies can help you obtain your business credit report and your current credit score. With this score, you can learn a lot about your business financial statistics and also the items negatively affecting your credit rating. Review your credit report on a regular basis and take action whenever you see incorrect information.

Use the Right Legal Business Structure

Many small companies start as sole proprietorships. At the time the business opens, this seems like the easiest way to proceed. There are many advantages to establishing a business as an LLC or a corporation. The most significant advantage is the separation of credit profiles between the owner and the company. If you have a sole proprietorship, your personal credit score is your business credit score. Incorporating will not only decrease your personal liability but enable you to establish and build strong credit under the business name.

Establish Payment Terms with Your Suppliers

This can be challenging, especially for new companies. When starting with a new supplier, ask for payment terms, and ask if they report payment history to the bureaus. If they don’t report, ask if you can use them as a reference. If you can get payment terms from suppliers, pay your bills when they are due. Payment terms do your business credit no good if they are not met.

Pay Your Bills on Time or Early

Paying your business bills on time is a simple and effective way of improving the credit score. Late payments directly affect your business credit score. If possible, paying your creditors early is an excellent habit to develop. Dun & Bradstreet scores businesses who pay early, higher than those who pay on time.

Monitor Your Business Credit Utilization Ratio

A business credit rating is calculated using different factors, and the credit utilization ratio is one of these factors. A business with a high utilization rate is seen as a risk because of its inability to pay its debts. Therefore, it is crucial to keep a low credit utilization rating, most preferably lower than 30 percent. Keeping the ratio low is a clear indication of the company’s ability to comfortably manage its debts. With low credit utilization ratio, the business attracts more willing lenders because of the low credit risk.

Use Invoice Factoring to Improve Your Business Credit

Invoice factoring is an excellent tool to improve your business credit. Companies that factor their invoices get immediate cash to use towards their business needs. There is no debt created by factoring, which keeps the credit utilization ratio low.

Companies that do not qualify for bank financing turn to factoring as the terms and rates are based on their customers’ credit and payment history, not their own. Businesses use the cash from factoring to pay their bills, purchase supplies, and meet payroll. Factoring enables companies to run their daily operations and work towards a stronger financial future.

About Scale Funding

Since 1994 Scale Funding has offered invoice factoring services to small and mid-size companies across North America. Scale Funding customizes factoring programs to meet the specific needs of each client. For a free, no-obligation consultation and factoring quote, complete the contact us form, or call 800-707-4845.