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Published By Credit Suite at March 4th, 2016
When building business credit, you will need to pay attention to more than just your payment history. How you use and interact with the credit system on several levels can either be a great benefit to your company, or come back to bite you if you aren’t careful. There are any number of business credit errors you could be making. And you might not even know it!
Here are a few things to watch out for:
So, suppliers and customers with bad credit can hurt your business. Not only do you need to be concerned about your own credit profile, but that of your suppliers too. A simple example of the importance of this is what happens with accounts receivable financing. Your rates for accounts receivable financing are based on your customer’s credit rather than your own business’s credit.
The reason is that accounts receivable financing depends on your customer’s ability to pay, not yours! So even if you don’t use accounts receivable financing, you should still check credit and know who you are doing business with, because a default on the end of a customer or supplier can be as harmful to your business than any internal hiccups that you might more easily anticipate.
Businesses need cash to operate. If you’re issuing credit, especially with longer terms, and always having to chase down funds, this can drastically reduce the day to day financial health and well-being of your business.
You can solve this problem with factoring.
While this might seem strange, financing certain operations just because you can isn’t always the wisest choice. Save your business credit for when you need it. Use credit to save available cash and purchase assets for the business. Use credit for creating and multiplying profits. But never use credit “just because”.
It blurs the line between your personal and business finances. And it increases the likelihood that a lawsuit could “pierce the corporate veil”. And it puts your personal credit at risk for your business’s debts. Yet it doesn’t do anything for you with regards to building your business credit. It’s a lose-lose scenario that you should avoid.
So, a lot of these mistakes are something you can readily avoid. There’s no reason to commit them, particularly now that you know better.