Are Slow Paying Customers Hurting Your Business Credit

You can find it challenging to work on the business and concentrate on growth if you have a backlog of invoices. This turns into a vicious cycle that may be bad for business credit scores or indices and, in some cases, bad for a busines

s owner's personal credit. Regardless of what happens, your new dangerous credit status could result in you being denied or being required to pay significantly higher costs when you apply for financing, new partnerships, better creditor/vendor conditions, or leases.

Take the following steps to keep late payments from harming your business finances and credit.

1. Make sure your contracts are open and transparent: This entails outlining the terms and conditions that were offered to the client and agreed. It should also be obvious what portion of the invoice they are agreeing to pay. In the event that you offer a discount for paying in advance or impose late fees, this information should also be stated in the contract.

2. Be cautious when extending the payment terms: It may seem contradictory to be choosy about who purchases your goods, but when a business gives payment terms, it is putting its trust in another business and needs assurance that invoices will be paid. If you analyse credit, you will have a better understanding of the people you are dealing with and their prior payment histories. If a potential customer's credit history reveals a pattern of past-due or unpaid accounts, you may decide that they pose too significant a risk and request payment upon receipt.

3. Apply for a credit line or overdraft account: If you have a line of credit or an overdraft account with a sufficient balance, your business may benefit when cash flow is sluggish if clients aren't paying on time. Remember that you need excellent (or at least good) personal and business credit. Make sure to assess both your personal and business credit before asking your company's banker or a credit specialist for a line of credit.

4. Maintain a positive business credit rating: The net-30 or net-60 term your client requests may be problematic for your cash flow even if they have excellent credit and are not currently experiencing financial difficulties. Although the creditworthiness of your clients is crucial, you also need to have outstanding business credit. especially if you plan to use an overdraft account, line of credit, or invoice factoring to cover your expenses while you wait for receivables.

A free credit assessment and insight into your company's credit reports are both available from us at Financial Services Unlimited..