Have you considered taking a moment to reassess your business credit? It might be the perfect time to establish a repeatable process for evaluating how you access credit to keep your business growing.
According to the 2019 Small Business Credit Survey (an annual report conducted by multiple Federal Reserve Banks surveying 6,614 businesses with 1-499 employees), 64 percent of businesses faced financial challenges in "the prior 12 months" of the survey. Of those challenges, 31 percent of surveyed companies reported credit availability as a challenge.
While you might feel you have your business credit options on lock, “set it and forget it" might not be the best solution. Establishing a system to periodically review how you're building business credit, your current terms and available financial tools can help you access the funds you need to keep your business moving forward.
Creating a Review Plan
If your credit is operating on autopilot, it might be time to press pause and get an accurate picture of your terms. This picture includes interest rates, terms with vendors and suppliers, as well as your overall business credit score.
Start by setting a meeting with your financial team, including both internal and external personnel. This way, you can have a complete view of everything that creates your company's credit profile, including credit cards, AP/AR terms, loans and your business credit report. Including your entire financial team on the initial review meeting helps ensure that no financial stone is left unturned.
Once you've accounted for all aspects of your current credit profile, consult your team and set a regular review schedule for both your entire profile and incidental reviews. (Incidental reviews might include aspects of your credit profile that might change as often as month-to-month or quarterly.)
As you're building your company's credit, your firm may naturally cycle from less favorable to more favorable terms. The terms you receive will be widely dependent on your creditworthiness, which depends on how quickly you pay your obligations and whether you pay vendors and creditors on time.
As you review your terms, be sure to look at credit card interest rates, the terms you get with each card issued in your business' name and the terms you're issued by vendors. Here are some tips to help with each type of term evaluation:
- Credit card interest rates: When your business has had a credit card for over a year and you've shown an exemplary payment history, you can inquire with your issuer about lowering your interest rate. While it's not a given, asking never hurts. You can also see if you have a card with an attractive balance transfer offer to save on interest charges.
- Credit card payment terms: Many business cards offer discounts for early payments or the option to carry a balance for a predetermined time. Make sure you're not leaving valuable card benefits on the table.
- Credit card rewards: If you have rewards built into your credit cards, see if you're leveraging your award accumulations in the smartest way possible. Don't miss out on opportunities to exchange points for statement credits or redeem points for business travel expenses—it can help save money in the long run.
You should also review the payment terms you have with your vendors. If you've demonstrated a positive payment history, encourage your accounting department to reach out to vendors and explore terms that help free-up your cash flow. Even a 15-day extension in payment terms can mean a substantial shift in available cash-on-hand.
Exploring Alternate Financial Vehicles and Credit Flexibility
If cash flow is tight sometimes, you're not alone. That's why it's essential to review whether your overall credit strategy could benefit from tapping into alternative financial tools to help infuse cash when flow is low.
Business loans can help you finance—or even refinance—larger cash flow needs like payroll and marketing expenses or even capital equipment purchases. They can also be used to consolidate debt at a fixed lower rate, such as paying off credit card balances.
Merchant financing is a credit tool that can help seasonal businesses that accept credit cards use their credit card sales to tap into cash up-front. Lenders will review your merchant sales volume to determine the size of loan you're eligible for. You can repay the loan in various ways, including daily increments of your sales volume.
Tools like these also help with credit flexibility as they're easy options to overlook. The right solution can give your business the cash infusion it needs to stay nimble in competitive markets and keep your trajectory pointing forward when other less savvy companies might be weighed down by a cash-flow crunch.
The strategies and tools above for reassessing your company's credit usage and flexibility can help your business identify opportunities year-round. That's what establishing business credit is all about, after all: creating opportunities for you to excel in the marketplace.
What's next, you ask? It's establishing a plan and sticking with it. Make sure you're maintaining your review strategy through personnel and banking changes as well as any shifts in leadership.
As you review your terms, be sure to look at credit card interest rates, the terms you get with each card issued in your business' name and the terms you're issued by vendors.
Finally, building business credit is an ongoing endeavor. Whether you're just starting out or looking for new ideas on how to build business credit, these tips can get you started on the right foot.
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