Bad Business Credit Hurts

Many small business owners don't bother to think too much about their company's credit rating. Since their customers aren't concerned about it, and as long as the sales continue to come in, they don't see the particular importance of it. But what that actually shows is a "small" mindset. It's a good bet that a small business owner with this attitude is destined to always be "small" business owner. If the need for expansion ever arises, the business will be hard-pressed to find the resources with which to fund it, especially if its credit has already slipped down the scale somewhat.

But bad business credit can be much more than just a hindrance to a company's future; indeed it also has the capability to play havoc on the current bottom line as well. For instance, bad credit can force an organization to pay cash for all of its necessary goods and services, thereby tying up much needed working capital and drastically affecting cash flow – which is a business's lifeblood. Further, many trade-credit businesses operate using short-term thirty-, sixty-, or ninety-day loans, allowing time for the receipt of customer invoice payments. This alternative becomes inaccessible to the company with bad credit. Additionally, business suppliers often offer their clients an "early payment" discount to encourage them to pay their bills before the actual to date. This option, too, might well be unavailable to the business that's been deemed a "cash only" transaction due to unacceptable credit. And there's simply no point in even mentioning the loss of eligibility for credit from established lending institutions. Forget it!

If your business is in this circumstance, it's not too late. On the other hand, if you don't know what circumstance your business is credit-wise, then find out. It's your company, and your responsibility. Order a business credit report and evaluate the condition of your organization's credit history. After all, this is how others will view the business's (and, by extension, your own) reputation. Even if you've fastidiously maintained your business credit accounts, your credit report may contain errors or outdated information (an absolutely alarming number of credit files do).

If you're business's credit is bad and you know it (or find out about it when you get the report), begin immediately to take positive steps to repair and rebuild it. Make it a priority. If you're having cash flow problems and are behind in payments to creditors, contact them and let them know about it. The sooner this is done, the better you'll be and the more amiably your creditors will help you in working out a reasonable solution. Conversely, the longer you wait, the more untrusting, unyielding, and just plain irritable they'll become.

After you've contacted your creditors, get started in taking a good, long look at your organization and how it pays its bills. Are you simply over-obligated, owing more than you can possibly pay? If so, then you'll need to work out a method to raise profits, lower expenses, or both. Perhaps an overall streamlining to make your operation more efficient is all that's necessary, or you might need to institute somewhat stronger financial measures.

Sometimes, however, credit problems can arise for reasons other than cash flow shortages. Accounting mistakes, due-date oversights, and administrative misunderstandings have all been known to cause a bill to go unpaid. The point, therefore, is to determine the reasons for bad business credit and aggressively address them. Don't wait until the problem has advanced to the point where your only remaining financing options are "cash" or "nothing." Bad credit limits your company's opportunities for growth; it, and you, both deserve better than that.

blog comments powered by Disqus