Implementing basic credit-building strategies can hugely benefit your small business. By cultivating relationships with vendors that report to the three major business credit bureaus, you’ll consistently increase your creditworthiness just by repaying debts on time. Here’s how smart management of your tradelines can improve cash flow and future loan terms.
What you need to know
- Your business creditworthiness is determined by a profile created by the business credit bureaus, which includes your vendor information, history, and credit use.
- Credit and vendor accounts on your credit report are called tradelines. Managing your tradelines with timely payments is the fastest and easiest way to build business credit.
- Establish good relationships with vendors who report to the credit bureaus by using dedicated business finance tools to monitor your cash flow. Communicate and negotiate with partners if you foresee any financial difficulty.
What is business credit?
When you register with the business credit bureaus, they start to gather information about your business—called your business credit profile—and assign you a business credit score. Your business credit profile could also be evaluated when negotiating payment terms on a supplier agreement. That score is referenced by lending institutions and other businesses to determine your creditworthiness.
Business credit bureaus use a different scoring system for businesses than individuals, but many of the variables used to calculate business credit scores are the same. Those include payment history, credit use, credit history, age of credit accounts, debt, and debt-to-equity ratio.
Understanding tradelines
Lines of credit and vendor accounts listed on your business credit report are also known as tradelines. In other words, your credit report shows one tradeline per business credit account, and each tradeline includes information about your business, the lender, the type of credit, and your history together.
Managing your tradelines by repaying debts on time is a great way to manage cash flow and build business credit.
How vendor relationships help you build business credit
Establishing and maintaining strong tradelines can lead to favorable payment terms when you negotiate future contracts. This can help your company simplify supplier payments and cash flow. In addition, maintaining strong tradelines will improve your business credit score over time, which can earn you better terms for loans and future supplier contracts.
Choose vendors that help you build credit
Ask your vendors if they report to the credit bureaus, and if they don’t, ask if they can start. Lenders and vendors who offer long-term repayments or contracts are best for building business credit, as they involve a longer relationship. Diversifying your suppliers and paying them all on time also enhances creditworthiness, so don’t limit yourself to too few suppliers.
Maintain relationships and negotiate terms
When starting a new business relationship—whether it’s with a landlord, a supplier, or a lender—always negotiate agreement terms to meet the needs of your business. Having a strong business credit profile will help you do that, and negotiating can help improve your cash flow.
Healthy, long-term relationships with lenders and suppliers will continually improve your business credit. If you foresee difficulty paying on time, communicate honestly with your partners—you’ll be more likely to be able to renegotiate terms if you have history.
Monitor and manage credit relationships
Managing credit relationships starts with choosing the right tools to manage your business finances. Choose a business checking account that allows you to track cash flow and pay vendors directly from your account. Using an all-in-one financial tool will allow you to quickly see if you’re behind on payments and strategically plan for any future credit needs.
See how Bluevine’s do-it-all financial platform can help your business thrive.
