Are you a business owner that is trying to improve your financial situation and avoid credit mistakes?
If so, there are several elements that can contribute to the varying financial stability of your company, so there are multiple things to manage!
An aspect commonly looked over when assessing finances is the credit of your business.
Credit is vital to the growth and continuation of your company and poor credit can negatively affect several business elements.
It is, therefore, important that you are not making errors regarding your credit, as it can make or break a business!
In this article, our debt collectors discuss 5 credit mistakes that can put your entire business at risk and what you can do to prevent them from happening.
Credit Mistakes #1 - Not Checking Credit Reports
One error that many businesses make regarding their credit is not sufficiently checking credit reports.
There is room for error in credit reports, just like many other things, and these errors can take serious negative effects on your business.
A report by the Wall Street Journal in the US discovered that within small businesses, only 1 in 3 business owners have checked their credit reports in the last 2 years.
You may see this as not a big issue. After all, the chances of an error being made in one of these reports are slim, right? Unfortunately, this is not the case.
The same report also discovered that of the businesses that checked their reports, 25% discovered one or multiple errors within.
If errors are allowed to remain within your credit report, your business may have trouble receiving lower interest rates or credit at all, as creditors may consider you a risk.
Make sure that each time your credit report is updated, or at the very least before you apply for credit, that you invest your time into checking to make sure the report is accurate and report any errors you discover.
Credit Mistakes #2 - Not Making Payments on Time
Another common cause of credit mistakes in businesses is not making payments to creditors on time.
This mistake is one of the most common and detrimental errors you can make as an owner and can cause extreme effects on your business and its credit score (depending on the details of the payment).
Similar to personal debts, in business not repaying debts on time is one of the most influential factors on your credit.
When you are getting started or experiencing financial troubles in your business, it can be hard to both keep track of and afford to pay debts coming in.
It is vital, however, that you make it a priority and set up some precautions to prevent either of these factors from influencing your ability to pay on time.
As soon as your business begins, you should be saving an emergency fund for the possibility of future unforeseen financial disasters.
This emergency fund can allow you to continue to pay debts if a scenario of such does occur, preventing late payments which lower your credit and worsens your financial troubles.
You may also wish to establish a reminder system to prevent missed payments due to your busy schedule occupying your mind.
Credit Mistakes #3 - Depending Solely on Personal Credit
Another error one may make regarding their business's credit is relying too heavily on their own personal credit rather than business credit.
When first beginning your business, it can be hard to establish loans and a credit score without a profit or a well-regarded name behind you.
In this stage, many business owners will depend at least partially on their own credit to take out loans to build the business.
This can be extremely necessary, but too much reliance on this can hurt your business and personal finances down the track.
This is because the finances of your business and your own finances will become extremely entangled, causing issues with tax, and making you personally liable for payments.
To avoid this from occurring, make sure you start your business off right by establishing basic financial elements early.
This may be a bank account for your business and using credit from your company to slowly but surely build your credit score.
Credit Mistakes #4 - Not Effectively Budgeting
Another mistake business owners make regarding credit is not budgeting or managing finances effectively.
This can apply in several areas, such as taking out loans that you will not be able to pay for or simply failing to budget for effective debt repayment, as well as the basics such as rent and product/service expenses.
When applying for loans, make sure that when the time comes to pay it off your business will be able to afford it.
This sounds quite obvious. Why would I risk my business by taking out more than I can afford to pay back? Well, you would be surprised how often small business owners do just this!
Whether they take out loans without worrying about payments or do not take into account other expenses they already have it happens all the time.
When considering applying for a loan for expansion or simply basic business requirements, you should engage in a lengthy process to ensure you are ready for this added expense.
For starters, take into account all of the other payments you have to make.
Rent, product or service costs, electricity, employee wages, whatever they may be, make sure you think of them before taking out a loan.
Credit Mistakes #5 - Applying for Multiple Loans
Another mistake made by business owners regarding their credit scores is applying for multiple loans from various creditors.
When applying for loans, it is wise to only apply to establishments that you are fairly certain will accept your request.
Furthermore, borrowing from a wide variety of lenders can become messy and is not recommended.
Try to limit your lenders and loans to a limited number.
Consider Debt Collection for your Business
So, you are trying to improve your business's credit score and general financial situation.
Well, a large part of having good business credit is being able to afford to make debt repayments on time, something that depends heavily on income and cash flow.
To improve your cash flow, consider hiring a debt collector to recover debts from clients that you can’t seem to reach.
Not only does debt collection help with income and cash flow but can also free up a lot of time to focus on righting credit mistakes of the past!
Businesses’ can be difficult to manage.
Keeping your credit score positive can be difficult to focus on amongst all of the other elements you have to keep an eye on!
Focusing on at least not making fatal errors with your credit can be a great place to start and improve your business’ finances greatly!
Do you have unpaid business invoices or debts to collect?
Advance debt collection is an Australia-wide commercial debt collection agency and credit and accounts receivable management. We can recovery your debts, conduct skip tracing, and manage your accounts receivable. We collect your debts for commission only. This means no collection, no commission. We are professional debt collectors with combined 20 years of experience to help you collect your debts. We are partnered with expert litigation lawyers with years of experience in debt recovery, enforcement, and insolvency. Under the Agents Financial Administration Act 2014 Advance Debt Collection Pty Ltd hold authority number 4583821 to act as a debt collector. ADC Advance Debt Collection® is a registered trademark.