Business credit - the myths vs. the reality

Being a small business you may believe that your credit profile isn't all that important. You may think that a credit profile only matters for a large business but isn't really a big issue for you. Don't be fooled, your credit profile is critical to your business success.

To show you just how important your company credit report really is, we've uncovered some common myths that may be leading you astray:

I don't deal with big banks or suppliers so my credit profile doesn't matter

This is myth number 1 - many SMEs believe that if they don't deal with big banks or large suppliers their credit profile doesn't matter as other small businesses don't care. However, even if you deal with a small lender, there is likely to be a larger lender behind them. Also, in this day and age, all lenders (regardless of size) want to ensure you are in a sound financial position before they lend you money. Deals just aren't made with a smile and a handshake anymore!

In reality your application (be it made to a small lender or a big bank) could potentially be handled automatically, with no direct involvement from your local bank manager. Many financial institutions that process large numbers of applications typically use automated decision-making processes. This means the bank will have an automated process which analyses an application and applies cut-off scores to determine whether to accept or reject an application. Only those applications that are inconclusive will have manual intervention.

Therefore, even though your local bank officer may thinks your business is creditworthy, he may be unable to decide whether or not you receive credit and under what terms.

My business credit profile doesn't change very often

Myth number 2 - my credit profile doesn't change very often so I don't need to monitor it. The reality in this instance is that every business decision you make and every transaction you undertake can impact what information your suppliers, service providers, customers and business partners see about your business.

Think for a moment about all the transactions your business makes in just one month. There could be major transactions such as paying vendors or making lease or mortgage payments, but there could also be smaller transactions such as equipment leasing, advertising, shipping packages or purchasing stationary. How promptly do you pay each of these suppliers? Are you certain that you always pay on time? If you do, this is good news for your business credit profile but if you don't, chances are your late payments are being recorded on your company credit report so they can be seen by any organisation that wants to conduct business with you.

Every business transaction you make affects what the business world sees about your business and all these changes can affect the terms you get from your creditors or your bank thereby directly impacting your business cash flow. Your business credit report is essentially a resume on your business so its critical that you understand what's in it and you know how you are being viewed by your creditors. 

I'm small and new, my credit profile doesn't matter

Myth number 3 - my business is small and new, I don't need to monitor my company credit report�.wrong! In fact, these very features provide an even stronger reason why you should monitor your company credit report. 

In the early stages of operation you need to establish sound relationships with your suppliers, service providers, banks and insurance companies and this means putting your best foot forward. Chances are the companies you are establishing a relationship with will be reporting information that will affect your credit report. In turn, these items will influence the decisions other companies make about whether or not they should do business with you.

If you are unaware of what information is being added to your file and how regularly it is changing then you can't put your best foot forward to establish the relationships that will enable your business to grow profitably.

My cash flow won't be affected by my business credit profile

Myth number 4 - my business credit profile doesn't affect my cash flow. The terms, credit limits and rates you receive from vendors, service providers, banks and insurance companies have a significant influence on your cash flow and, these terms, limits and rates are largely determined based on an analysis of the creditworthiness of your firm. But how do your suppliers and financiers determine if you are creditworthy? They examine your business credit report.

Monitoring your business profile enables you to understand how your business partners see you. By monitoring your profile and maintaining a strong credit score, you can get the most favourable terms and rates that enable you to save money and improve your cash flow.

Want to know more about the information contained in a business credit report?Read Your credit profile or get a copy of your own business credit report >> 

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