It is a common question, especially with a newer business. How can I establish credit in my business? But it’s not solely a question for a new business. More established businesses often have to establish or even repair credit. Nevertheless, having the proper level of credit for a business is a smart way to ensure you have the backing you need, when you need it, as well as having the ability to conduct business with vendors without having to pay on demand.
There are a many out there that will claim to help you in this effort but be careful because some of the methods they might employ, could actually do the opposite of what you are trying to achieve.
Here are a few ways to get your business on the right track when it comes to building business credit.
Make sure you incorporate:
Most experts agree that to establish the proper credit in your business, you must be incorporated. The reason is fairly simple. You need to separate your personal finances from the finances of your company. So if you are running a small business, this should be your first step. Contact your attorney and ask them the best way to approach this. There are a few ways to go about this. You can create corporation or what they call an LLC which is a Limited Liability Company.
Work with your vendors:
Start working with any vendors to establish your credit with your accounts. And even open up a couple new accounts. That could be everything from a water cooler delivery to other vendors you might need around the office. But if you can avoid it, don’t open too many accounts at once. That can be a red flag and have creditors wondering if you are already trying to dig out of deep debt. Of course, pay your bills on time. That’s the only way to create great credit. And if you have existing accounts prior to creating your corporation, make sure you transfer those to your new business.
Pay on time:
Paying your bills late will create negative activity on your credit report and will negatively impact your ability to access more credit. We think, most people understand this. But it is always good to refresh your memory about this basic concept of credit. You are reading a collection agency blog so you should be aware of the side effects of paying late. After all, you are most likely in business already and you might even have late payers. And you know what late-paying customers cause your business. So, pay on time because it’s the right thing to do and, it will help you maintain a good credit rating.
Borrow some money:
That’s right, borrow a little cash. If you are not deep in the hole of debt, then you may be able to borrow money for a certain project or initiative. Maybe even a credit line for your business. As long as you have decent credit already, borrowing money can be a smart move. The key is to borrow the money and pay it back on time every month. Set up automatic payments to ensure you never miss a payment. If you have a bad credit history, and are already running behind in your financial obligations, this might not be the best approach just yet. You’ll be borrowing money at a much higher interest rate and you run the risk of paying late or defaulting. That’s the last thing you want to happen when trying to build credit.
Manage your cash flow:
Managing your cash flow means a few things. First, manage your money wisely. That goes for your personal finances as well as those in your company. Don’t over spend and don’t pay too much for things. Manage your costs such as payroll and cost of goods sold and keep an eye on your numbers regularly. Do not lose sight of your business numbers. It can get away from you very quickly if you don’t pay attention.
Managing cash flow also means getting paid for your services and products on time. If you are not getting paid on time, it only causes a chain reaction and gets in the way of you meeting your obligations. Get assertive, not aggressive, in getting your clients to pay on time and if you need assistance, consider a reputable collection agency to help your business move things along a little quicker. A reputable collection agency will treat your clients with respect and get your cash flow back on track.
Building your business credit back up can take some time but it is well worth the effort. If you are methodical in your efforts, your business will thank you for the time spent.