Image by: Wonderlane
By Michael Sterling
As a business owner, credit management is one of the most important things you can ever learn to attain. For small companies, it can be the very thing that makes or breaks your entire future. Nowadays, the business world judges us not by our credibility, but by our credit score. It’s vital to get our act together and start to devise a strategy that works best both for our companies and our consumers.
#1) Control Your Credit Score
When you’re running a small business, credit management becomes more than just keeping track of spending, especially if you ever apply for loans or an alternative lender. Credit scores are one of the top things that can destroy a thriving business so it’s crucial to become a stickler when it comes to monitoring yourself on Equifax, Experian, or TransUnion.
First and foremost, know what to look for. Double, even triple check your reports to make sure all accounts listed are indeed yours, any bankruptcies over 10 years aren’t listed, and any negative information older than 7 years are erased. Most of these companies will take their time clearing any mistakes which is why it’s crucial to be proactive and call them till they’re all clear.
For small business owners, personal and business scores are equally important. There have been cases where someone’s personal credit score has been a primary reason for an application being rejected for their company – don’t let this affect you. Implement all strategies towards your personal life simultaneously.
#2) Make Payments Automatic
There’s no reason to forget a payment when you make them automatic. Often times, you will have distracting schedules that can delay any sort of payment. Lenders, credit card companies, interest rates, and credit scores are all very sensitive to late payments so it’s best to rid yourself of the possibilities.
By making things automatic not only do you relieve yourself the burden of paying things on time, but it also gives you more flexibility when making future financial decisions. You will now be living under a ceiling, which subconsciously gives you a budget to maintain. Planning costs will be much more easier than before.
#3) Go Through A Major Credit Card Company
Companies like Visa, American Express, MasterCard, and Discover will always help your credit score get into the high 700s. This is because they work hand in hand with all major companies which have an effect on credit reports. The more you use these companies, the easier it is to manage your credit.
Even if the card is used at a business dinner or to fill up a client’s gas tank, use it at least a few times a week and make sure they’re included with your other automatic payments as mentioned above. The less you worry about it, the better.
#4) Create An Emergency Account
An emergency account is a must-have for small business owners, and it’s best to make it automatic at around 5% of your monthly returns. Consider it a savings account whereby its main purpose is to continuously grow with little to no withdrawals. As you pay the bills, pay your debts, and try to maintain your score, the account will get higher without you realizing it.
Not only will an account like this be there when there’s a major payment to be made, but it will also maintain your patience when it comes to spending. Instead of putting a purchase on company credit, wait two to three months and use the money from your emergency account. That way, you won’t have to interrupt the credit payments which are being billed regularly.
#5) Pay Debt And Earn Credit Simultaneously
If the government shutdown taught us anything, it’s to pay our debt before we apply for more credit. When we owe money, we have no right to ask for more. Many businesses survive on credit, yet, they have little worry about paying their debt, figuring they will pay a lump sum once they get a hefty return from sales – usually they end up paying a small percentage of what they need to.
One solution would be to do these both simultaneously. Find a comfortable sum you are willing to pay per month towards debt, and split it in half. Send one half to whatever debt or bills you owe per month, and the other towards any costs which are affecting your credit score.
Debt always takes priority before credit applications, otherwise your business is running on invisible cash which, as a business owner, doesn’t exactly help your customers.