Managing your business credit is one of the most challenging things you’ll do as a business owner, especially as you’re in the beginning stages of launching your business. It’s also one of the most important things you’ll do as a business owner who’s fairly new to the game. Over time, you’ll learn through trial and error exactly which financial strategies your business should use to stay ahead. In the mean time, here are four simple credit management tips to help get you on the right track:
1. Avoid relying on your personal credit
If you have exceptional credit, it may be tempting to use your personal credit to take out loans and credit cards for business purposes. Unfortunately, doing this may have a negative impact on your financial standing in the future. The best way for a business to secure its future credit situation is to take out loans and credit cards in the business’s name. You have to build your line of business credit in order to be granted any major assistance from lenders down the road. And if you end up facing financial issues, it’ll be a lot better for your business to file for bankruptcy than for you to personally have to file for bankruptcy.
2. Get paid on time and pay up on time
The best way to build and maintain your company’s credit is to pay your bills on time. This, of course, is easier said than done. Being able to pay your bills on time often depends on when your customers pay you and your sales numbers in general. As an owner of a business that’s in the process of establishing itself, it’s critical that you make management of your business’s cash flow a priority. Set up strict payment plans with your customers, and invest a substantial amount of time in your sales efforts. You need to be spending the majority of your time making sure you get paid on time, so you can pay off your debts and take some money home.
3. Consider your trade credit options, if applicable
If your business provides goods rather than services, you should think about looking into trade credit options with your inventory suppliers. Trade credit arrangements will allow you to be financially rewarded for paying for your supplies early and give you some leeway in terms of when you pay. It takes a while to figure out the flow of your business, and you ultimately don’t want to lose the trust of your suppliers in the event that you aren’t able to pay them on time. Trade credit will give you the flexibility you need to get into the groove of generating revenue, paying your bills, and making a profit.
4. Keep an eye on your business credit reports
You should know about any changes in your company’s credit history before anyone else does and especially before potential lenders and suppliers do. It’s a good idea to check your credit reports on a monthly basis to ensure that all the information in them is accurate. Business identity theft is a legitimate risk that can seriously tarnish your credit standing. Additionally, errors show up on credit reports fairly regularly. So, it’s wise to be proactive about detecting and reporting inaccuracies.
Use the tips listed above as you learn how to manage your business’s credit effectively and avoid financial trouble as your business expands. The financial decisions you make now do matter, and it’s essential that you think carefully about every credit decision you make.
Stella Walker is a freelance writer and business blogger who primarily writes about business and finance. When Stella’s not writing, she’s investing in the stock market, spending time with her kids, and training for marathons. Please leave comments for Stella below. She appreciates your feedback!
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