The Ultimate Business Credit Guide | Behalf
How does business credit work?
Most of us are aware of the importance of good personal credit and regularly take steps to improve and protect our score. Your business credit is just as important and plays a critical role in the long term success of your business. Unlike personal credit, business credit is not attached to your social security number; it’s linked to a business’ Employer Identification Number (EIN) or Tax Identification Number (TIN). A business credit score is an independent, potentially valuable asset that transfers with ownership of the business. Business credit bureaus monitor registered U.S. businesses and rate them on a scale of 0 to 100. These ratings are made publicly available via services that other businesses can buy.
Why is your business credit score important? It is obvious that lending institutions will look to your business credit score in evaluating your candidacy for any traditional loan product. However, did you know that non-financial companies may also be evaluating your credit score as they make commercial decisions about your business? Dun & Bradstreet, Experian and Equifax reports are also used in large corporations’ sourcing decisions. It is a common practice to vet a potential partner’s business health before committing to a long term deal. Separately, your business credit can also factor into your suppliers’ decisions on what trade terms to offer you. Like with personal credit, a great business credit score is required to secure the best terms.
What is your business credit score?
Similarly to how you likely check your personal credit score, it is important to maintain visibility into your business credit at all times. Dun and Bradstreet, a Behalf partner, offers a service that allows you to check your business credit report for free. Depending upon the stage of your business and the health of your current credit score, you may want to invest in an ongoing monitoring service. Since other businesses are likely checking your business’ credit report, your credit score is effectively your business’ reputation as a partner. At a minimum, you need to be aware of the story these reports are telling about your business. Then you can proactively take steps to resolve any negative marks.
3 Tips to Perfect Your Business Credit
Believe it or not, not all businesses have business credit. Depending upon the nature of your business, you may need to set a goal of establishing your business credit profile from scratch. Many private companies operate in a cash environment – no outstanding loans, no business credit cards – which demonstrates financial health, but also leaves no financial footprint for the bureaus to monitor.
Another common missed opportunity for building business credit is co-mingling business expenses with personal accounts. Small business owners are notorious for using their personal credit to fund their businesses. If you have taken out a personal loan to fund your start-up costs or are using a personal credit card to cover day-to-day expenses, your healthy business may still be off the credit bureaus’ radar. Although these practices may have worked just fine to date, ultimately a strong business credit score will be required to take your business to the next phase of success.
We recommend the following steps to establish a robust business credit profile.
1) Start with a credit check-up
Obtain a full business credit report so you can review your credit history and look for patterns. Good business hygiene starts at the transaction level. Is your credit report accurate? It is good practice to monitor your credit on a regular basis with a service like D&B and quickly work to resolve inaccuracies and or suspected fraud.
2) Get your payments “on the record”
Whether you have no credit or bad credit, you will need to make changes to your business practices to improve the way your company is rated. The best thing you can do today to begin establishing your profile is intentionally create your paper trail. Eliminate any usage of personal accounts for business funding and transition your cash payments to a method that reports to the business bureaus. Behalf reports to Dun & Bradstreet, so switching your recurring vendor payments to Behalf is a great start. Behalf can be used in place of cash, check, or personal credit card, so it is a seamless transition for you and your vendors.
3) Pay on time, every time
Regardless of which payment methods you choose, it is important that you make consistent, on time payments. As hard as it is to establish a credit profile from scratch, it is harder still to recover from negative remarks. There are no rules mandating suppliers to report to business bureaus, but thousands do share data on their customers’ on-time payments. Your adherence to your trade credit terms, as well as your timely pay-off of loans and credit card balances, can both be important parts of your credit picture. If any of your suppliers’ standard payment terms don’t give you enough time, start paying them with Behalf. Your Behalf payments are received within one business day, so you will maintain an unblemished on-time payment record with your supplier. Then, you can choose whatever Behalf financing terms you need.