A good business credit score can lead to better financing terms, increased credibility with vendors, and accelerated growth. The financial health of your business is both measured and determined by having a strong credit score, so it’s important to understand all the ways you can improve it. In addition to repaying loans and using a business credit card, paying your vendor bills is one of the easiest ways to do just that.
What you need to know
- Lenders and investors want to see a strong business credit profile—build one by making payments on time.
- All your business payments—whether on-time, late, or missed—are recorded by the bureaus, so each one can affect your business credit score.
- Automating your bill payments to ensure they’re always on-time is an especially easy way to maintain or improve your business credit score.
How bill payments affect your business credit score
The three major business credit reporting bureaus are Dun & Bradstreet, Equifax, and Experian. If you’ve been in business for two years, register with all three. Then, they’ll each calculate and track a business credit score between one and one hundred.
All three agencies use several variables when compiling your business credit reports. One of the most important is whether you make recurring payments on time—each on-time payment is recorded by the business credit bureaus and factored into your business credit score.
An automated bill pay platform ensures you don’t miss any due dates, and helps you avoid negative impacts to your business credit score and potential late fees that further restrict cash flow. This will result in better terms from vendors, suppliers, and utility companies.
Did you know?
Bluevine reports line of credit payment activity to Experian to help small businesses like yours build credit.
Strategies for making bill payments on time
Making automated bill payments on time can only happen if your company manages cash flow well (which also reflects well on your business credit report). Creating a sensible budget that factors in all your monthly bills and allows for emergency spending can help you streamline your bill payments.
It’s natural to be apprehensive about automated payments when your business is in its startup phase. Revenue might fluctuate, making it difficult to predict whether you’ll have money to cover bills. One way to organize those obligations is to automate some of your payments, like rent and utilities, then automate the non-essential bills as cash flow improves.
There’s usually a brief grace period between the due date and when a bill is reported as late to the credit bureaus—for example, credit card companies usually report late payments thirty days after the initial due date. You’ll incur a late fee, but you can still preserve your business credit score to re-organize your business bills to ensure you don’t miss that second due date.
Monitoring your business credit score
Each of the credit bureaus offers paid credit monitoring for you to track your business credit score. They also offer email or text alerts to notify you when your score goes up or down, then you can sign in and see the activity that caused the movement. (Your business bank account may offer similar tools.) This can be valuable, but following your score too closely can cause you to fixate on small changes instead of planning for the long-term.
Regularly checking your credit report can help inform better cash flow management and help you detect discrepancies early.
How to improve your business credit score
Automating bill payments is one of the best ways to maintain or improve your business credit score. A complimentary way to boost your credit is to have a mix of credit loans—for example, a business term loan or line of credit, plus a credit card. Repaying each of those on time while keeping your credit balances low can boost your score.
Try to avoid late or missed payments, but don’t give up if you get one. Business credit scores are evaluated on a shorter cycle than personal scores, so you won’t be left with a seven-to-ten year negative mark on your credit report if you miss a payment. If credit monitoring reveals an erroneous credit entry, challenge it immediately so the credit bureaus can remove it.
Understanding how credit scores and reporting works can give you a different perspective on how to do business. Putting off bill payments until the last minute may seem to improve cash flow over the short-term, but paying them early or on time can provide better long-term liquidity and profitability. That’s reflected in your business credit score.
The broader impact of having a good credit score
Lenders view business credit scores as a sign of business maturity. They’ll look at your business credit report to verify your financial history and time in business when assessing you for a loan. When combined with your submitted financial reports and bank statements, your credit report helps paint a full picture of your company’s creditworthiness.
A good business credit score can also provide you with leverage when negotiating terms with lenders or vendors. Potential investors might also use it to inform their decisions, because a strong credit score shows your business is an established entity. That credibility can facilitate growth and scale.
With consistent, on-time repayments, you can use a Bluevine Line of Credit to help build your business credit score.