Improving Your Business Credit Score

Improving Your Business Credit Score

Accutrac Capital 10-Dec-2015 0 Comments

Improving your business credit score should be one of the main goals of your trucking companys financial strategy. Whether it is a potential customer assessing your companys trust factor or a bank doing its due diligence, your business credit status is often the basis for decisions other companies make about you. Credibility is currency; it pays to have a focused long term goal to foster a strong credit rating for your trucking business.

The Importance of a Solid Credit Rating

In most cases when searching for business financing, a company owners first impulse is to seek an operating line of credit from a commercial bank. If the trucking company has healthy financial and accounting statements plus a solid credit rating then the bank may agree to lend money. This agreement will however come with strict covenants to control the management of the loan. If the company has not yet established a solid credit rating, or its financials are compromised by a history of negative cash flow, then qualification for the line of credit will be denied. Further, any potential client that is considering entering into a service agreement with your trucking company will encounter your credit rating when doing their due diligence. A poor credit rating will certainly be enough to terminate the relationship and you will have lost a new book of business.

Paying Bills On Time is Critically Important

Many trucking businesses do not pay bills until they themselves receive payment from their customers. This is a viable solution to reduce risk but ultimately it can have negative results that seriously impact your companys credit rating. When you allow payments to go delinquent it leads to late fees and dings to your credit rating. Vendors and suppliers may stop extending credit or services to your business in favor of customers who pay on time. Paying bills on time improves both your credit rating and your companys credibility.

Bank Financing Often Curbs the Growth of a Trucking Company

In this economic environment, many bankers are wary of trucking companies as they consider them to be high risk. Banks look for companies with strong balance sheets and a solid credit history to approve an operating loan. For many carriers, these are difficult credentials to provide. Todays economic environment of high costs, weaker than expected volumes and stiff competition has wreaked havoc with most trucking companies financial statements. Even if a trucking company does manage to qualify for bank financing, they often struggle to uphold the restrictive covenants that govern the terms of the loan. These restrictions limit the amount of debt a company can take on to buy essentials such as equipment. This often curbs the growth of a company and ties the hands of the owners.

Invoice Factoring Solves the Financial Challenges

As difficult as it may be for established businesses to maintain good credit ratings, it is next to impossible for startup and growing companies to provide a solid credit history at the time when financing is required. Fortunately, there are alternative financing companies that offer specialized services, such as Invoice Factoring, to solve the many financial challenges specific to trucking. Invoice Factoring is an extremely beneficial cash flow tool that used properly can build long term financial stability.

First and foremost, factoring your trucking companys accounts receivable invoices creates instant positive cash flow. With invoice factoring you have the cash needed to fund operations each and every day. The more your business grows, the more funds become available to support operations.

Improve Business Relationships and Financial Status

Managed effectively, Invoice Factoring will actually help to improve your credit rating. The positive cash flow generated by invoice factoring will allow your company to pay bills and meet payments on time and in full. Some companies use the benefits of instant positive cash flow to obtain supplier discounts by paying their bills early. As your company now makes all payments on time, you will improve business relationships as you build a stronger credit rating. In many cases, trucking companies that once failed to meet the qualification requirements of a banking line of credit were able to succeed after a period of using invoice factoring. By building their credit score through invoice factoring these companies have improved business relationships while improving their financial status.

Your Trucking Company Should Conduct Credit Searches on Others

Just as banks use credit scores to validate your companys credibility, so too should your company conduct credit scores on others. Each new customer you take on is a new debtor to your business and therefore a potential source for risk. In order to alleviate the risk, your trucking company should conduct a thorough due diligence process that includes researching the potential customers credit score. A reputable invoice factoring company that specializes in the trucking industry will have a free credit search tool allowing their trucking customers the ability to conduct these credit searches for free.

Build Successful Relationships and Establish Trust

Your companys growth is dependent on two factors; building successful business relationships and establishing a trustworthy reputation. Your companys credit rating is an important metric that reflects these two factors. Managed effectively, factoring your accounts receivable invoices to access immediate cash is as good for your credit rating as it is for funding growth.

For more information about Free Credit Searches and the benefits of Invoice Factoring, contact Accutrac Capital online or call: 866 531-2615.

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