If you have a small business and are looking to grow, there are some tactics you can apply to your business’s financial management processes that can help boost its health, and even positively influence your business’s credit score.
Why does this matter? With a strong business credit score, it’s easier to secure business funding from trusted lenders.
Your ability to manage credit agreements with your vendors plays a key role in determining your business credit score, and helps you build a history of responsible financial behaviour.
Read on to find out more about how smart vendor management within your business can improve your business credit score.
What is a Business Credit Score?
Your business credit score is the numerical value that reflects how reliable your business is when it comes to repaying debts or loans. Just like a personal credit score shows an individual’s financial trustworthiness, a business credit score is used by lenders, suppliers and other financial institutions to evaluate the risk of doing business with you. The score is based on factors including your payment history, credit use and length of credit history.
Credit bureaus automatically gather information about your business from lenders when you apply for credit to create your business credit report. This information is used to calculate your business credit score.
Lenders and other businesses consider your business credit score to determine your creditworthiness when you apply for funding, and when you negotiate payment terms as part of a vendor agreement, your business credit report is also evaluated.
If you’re wondering how to improve your business credit score, managing your existing business credit responsibly and paying your invoices on time are two ways to boost it. This can also help you reduce and manage your cash flow risk.
The Role Vendors Play in Your Future Funding Success
Vendors play a key role in your future funding success, as they can help you build a strong credit history. The healthier your score, the more likely you are to be approved for the business funding you may need in the future. Below you can learn more about our business funding solutions and whether they are the best fit for your business.
3 Smart Vendor Management Strategies
Here are three smart vendor management strategies you can use to start seeing results and improve your business credit score over time:
1. Choose the right vendors and diversify
Be selective about your vendors. Diversifying your vendors spreads out your financial risk and ensures that your credit activity is reported across multiple sources. Choose vendors that report to credit bureaus. If they don’t, ask them if they can.
2. Build strong vendor relationships
Building strong long-term vendor relationships can help you gradually improve your business credit score. You can do this by paying your invoices on time.
If you’re unable to pay on time, communicate with your vendors honestly and in advance to try and negotiate flexible payment terms. This can give you more time to pay, help you manage your cash flow, and help you maintain a favourable business credit score.
3. Regularly monitor your vendor tradelines
Vendor accounts and lines of credit listed on your credit report are also known as tradelines. Your business credit report shows one tradeline per business credit account. Each tradeline includes information about your business, the lender, the type of credit and your history together. With the right financial tools you can easily manage and monitor your vendor tradelines.
With a comprehensive business banking solution like our Lula Free Business Bank Account, you can access a powerful cash flow management tool, Lulaflow, which makes it easy to track and manage business income and expenses all in one place, including your outgoings to certain vendors.
Why Managing Your Business Credit Score Is Important
There are different types of business funding options to consider as a growing business. Access to funding is important for your business as it allows you to adjust to industry changes and respond to new growth opportunities.
However counterintuitive incurring business debt sounds, responsibly managing your business debt can help you improve your business’s creditworthiness and grow. Funding can free up cash flow to invest in new opportunities.
By implementing these three vendor management strategies you can take strides to boost your business credit score and, in turn, increase your chance of being approved for the funding you need to invest in your business’s growth.
Our funding solutions including Lula’s Capital Advance and Revolving Capital Facility provide access to up to R5 million in funding within as little as 24 hours. Apply online in minutes to see if you qualify.
