Most companies struggle with financial issues, especially in the early stages of establishing the business. If a business has customers that do not pay invoices on time, or perhaps at all, this can negatively affect the company’s ability to pay its own vendors. After enough missed payments, the credit score of a company can dip and need to be repaired. There are steps that can be taken to repair credit, including reducing debt, paying vendors on time, negotiating with lenders and ensuring personal finances are kept separate from business expenses.
1. Reduce Debt
Credit scores are affected by the amount of debt a company carries. However, the utilization rate is also considered in the calculations. It looks much better for a company to have a high credit limit and only have a small percentage of that credit used. Even if the numbers are high, if the percentage is low then the credit score will be improved. Try to pay off debts to lower the utilization rate in order to boost the credit score.
2. Pay Bills in a Timely Manner
Late or missing payments can damage credit scores quickly and harm relationships with vendors, landlords and utility companies. Making payments on time can help to repair credit and improve relationships. If it is not always possible to make payments on time, then contact vendors or creditors and explain the situation to try to maintain positive relationships.
3. Negotiate With Lenders
Lenders and creditors are occasionally open to negotiation about the payment terms. Even if payments have been consistently late or missed, it is a good idea to talk to the lender to ask about negotiating a payment plan. They may be willing to work out a deal and could be open to removing delinquencies from the account as long as the new terms are met. Try to have the interest rates reduced, fees waived or payment times extended.
4. Keep Personal Finances Separate
If the business owner mixes their personal and business finances together, there could be negative consequences. The IRS may perform an audit if they notice the two are combined. If the business owner has a bad credit score, then they could harm the company if they do not keep the accounts separated.
If the company runs into financial trouble and the credit score is lowered, then they can take action as soon as possible to mitigate any damages. By being honest about their capabilities and straightforward with vendors and creditors, business owners can improve relationships and credit scores.