Core Insights Blog

Three Tips to Gain (and Keep) Business Credit

November 18th, 2009 by Alex Coté

The small business credit crunch has justifiably been one of the primary news themes during the recession and slow recovery. And while stingy, risk-adverse credit behavior from banks and lenders is often labeled as the primary culprit, some small business owners may actually be exacerbating the credit crunch, albeit more due to ignorance than intentionally bad habits. Cortera, a community based business credit bureau, publishes a monthly index on small business credit behavior – trends on A/R and payment activities – and the data continues to show that small businesses have become increasingly delinquent in paying bills in a timely manner. You could say such behavior is a result of dwindling cash due to less access to credit, but it’s also a result of well intentioned efforts to extend working capital by holding cash as long as possible. Unfortunately, such behavior is hurting their credit viability, making it even harder to secure loans and credit lines. So just how can businesses maximize the limited capital they have while improving their credit rating? Here are three simple tips:

Get Your Suppliers Involved – they’ll love you for it. If you are financially healthy and meeting your own profitability goals, your suppliers and vendors will obviously benefit as you grow and thrive. Encourage them to report to the major credit bureaus (Dun & Bradtsreet, Experian, Equifax and Cortera) so that you get credit (no pun intended) for regularly paying your bills on time.
Pay Your Vendors and Suppliers on Time – it might even save you money. Sounds simple, but if you are not paying your bills in a timely manner it will negatively impact your business credit report and will eventually hurt your ability to obtain business credit in the future. Many vendors also provide discounts if you pay early, so if you get in a cash flow habit of paying before the invoice is due, you’ll often save 2% or more off your invoice.
Communicate, Communicate, and Communicate. Whether you are extremely profitable with plenty of cash on hand or struggling to pay your next invoice, keeping your suppliers in the loop goes a long way in negotiating your terms. Never go completely dark and stop returning inquiries. And never stretch out payments without being up front and transparent with your suppliers as to why you may need to pursue such a tactic. This will alienate your suppliers and could lead them to cut you off completely, further handcuffing your business and potentially causing you even more pain.

Obviously these are only three of many best practices. Have other ideas or tips? We’d love to hear from you.