5 Ways to Secure Better Payment Terms For Your Small BusinessMost small business owners spend a great deal of time worrying about cash flow and wording your own payment terms to ensure invoices are paid in a timely manner. On the flip side of this, you still need to secure good payment terms from both lenders and vendors to keep your business running smoothly and avoid hefty interest rates on loans and boost sales.
One of the most important things to facilitate this is your business credit score (not to be confused with your personal credit score), which can be leveraged to get you better rates and terms, although strong relationships and a few other factors are key. Here are some of the most important steps you can take to secure the best payment terms as you grow your business.
1. Focus on Your Business Credit Score
Your business credit won’t just secure you those low interest rates, it’ll also get better payment terms from vendors by showing the reliability of your business to pay its debts. In many industries, a high business credit score will even boost sales as there are some customers who will check your company’s credit rating before turning over orders. Make sure vendors report your on-time payments to boost your business credit rating and over time you will see the cost of doing business and growing will lower. Also beware of business credit cards like this one that are tied to your personal credit score.
2. Don’t Be Afraid to Negotiate
There is nothing that says the payment terms you are offered by a vendor or bank are written in stone. Negotiating will go a long way, especially if your business has excellent credit. Always read the fine print on loan guarantee documents, for example, and get an opt-out clause if the lender requires a personal guarantee that will erase it if you choose to leave the business or sell it. Burn-off clauses, on the other hand, lower the amount of the personal guarantee as the loan is paid off.
3. Build Strong Relationships with Vendors
While your relationships with your customers are the most important, don’t neglect relationships with vendors as well. Make sure you pay invoices early and develop multiple points of contact with every vendor to get better payment terms. If vendors typically require payment in full at the time of delivery, a strong relationship can come in handy and convince the vendor to give you 30 days to pay for product. Better payment terms mean you won’t need to turn to a lender to borrow the money and pay interest.
4. Know What’s In Your Credit File Before You Fill Out Applications
As the business grows, you’ll need to complete credit applications form time to time for suppliers, vendors and creditors. Before you fill out the application, make sure you know what’s on your business credit file. Evaluate your business credit and look at your payment history, credit balances, and your track record. Start-ups are riskier for vendors and creditors while a business that’s well established will get a better interest rate.
It’s also important to be aware of the differences between charge cards and credit cards and how they report to the credit bureaus.
If you have red flags on your business credit report, such as liens or judgements, keep in mind that only one or two won’t necessarily be a deal breaker but you should be upfront and prepared to explain what happened.
5. Solid References Are Extremely Important
Finally, make sure you have good references for your business before you fill out any credit applications. Call the references ahead of time to get their permission and make sure there aren’t any invoices you overlooked with them. Three to four references is ideal and the creditor will most likely ask them how long they’ve done business with your company, the maximum credit they extended, how long you take to pay invoices and if there has ever been a time when your business wasn’t able to pay an invoice on time.
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