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American Express OPEN provides tips to small businesses about managing their credit
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Yesterday, I found a new apartment. When I turned in my lease application to the building’s management company, one of the company’s partners saw that I work for a large financial services company. As a small business owner, he had questions about managing his credit, applying for new credit, and growing his business responsibly. In this environment, these questions are critical to small businesses surviving and thriving.
American Express OPEN, the nation's leading small business card issuer, recently put together a set of tips to help entrepreneurs with the exact same questions that my new landlord asked me. They are useful if you run a small business, are considering starting a small business, and shed some light on personal credit management as well. I’ve stared the ones below that also apply to personal credit management and added some commentary in italics.
BEFORE YOUR APPLY FOR CREDIT
• *Clean up your financials – Review your credit bureau reports regularly to make sure you recognize all accounts and that credit balances are in line with your records. Make your financial statements as transparent as possible to share with banks and issuers from whom you are requesting credit. Financials can be prepared internally, but consider having them certified and validated by an accountant.
• *Don’t apply for too much credit – In any credit environment, too many credit requests can lower your credit score and negatively impact your ability to access credit. Remember, your personal and business credit is related, and both should be managed carefully.
• Register your business – Make it easy for card issuers to confirm that you are an established enterprise by registering your business with commercial bureaus like Dun and Bradstreet and the Small Business Financial Exchange.
• Keep your licenses current – If your business licenses are lapsed, an issuer or bank could question the viability or future of your business. Making sure you are insured and bonded can also indicate that you are running a healthy business that expects more clients and/or projects.
ONCE YOU SECURE CREDIT
• *Effectively manage cash flow – Your ability to pay your bills depends on the cash that flows in and out of your business which, is even more important in times of economic downturn when cash is often scarce. In addition to staying on top of your accounts receivable, consider utilizing a charge card which, must be paid in full monthly and can help you control business spending and expenses.
• *Pay all bills on time – You should be vigilant about paying the amount you owe on time, every month. Late payment on any bill may have a negative impact on your credit score. Pay attention to all payment due dates and consider using online or phone payment options to make sure your payments arrive on time.
• * Only take on debt that helps drive revenues – Besides tightening the reigns on your discretionary business spending, only take on debt that helps increase revenues for your business. “Good debt” such as purchasing new equipment, moving to a better location or hiring key staff, helps a business grow. “Bad debt” such as buying a new computer when your current computer is working well, adds to a business’s monthly financial commitments but does little to up the revenue stream. (In the case of personal credit management, debt such as school loans are “good debt” because you are investing in your own personal value that will help drive long-term career growth, and hopefully generate a higher personal income for you. Think twice about buying a new piece of clothing, gadget, or nice-to-have item on credit. If you can’t pay it off within a month and don’t need it, forgo it for the time being.)
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