Your business credit scores and ratings provide an initial snapshot of your company’s financial standing. The best way to understand your business credit scores is through business credit monitoring, which can help you stay on top of payment performance, credit inquiries from other companies, and changes to your credit report.
Monitoring your business credit helps you to maintain your company’s overall financial standing, which may improve your chances of securing more favorable terms from lenders. Here’s how you can influence your small business’s creditworthiness by monitoring your business scores and ratings and knowing when to act.
[Read more: How to Find Your Small Business Credit Score]
What is creditworthiness and why does it matter?
Your business’s creditworthiness is often measured by how likely your business is to pay an invoice in full by the due date and within the set of previously established terms. Your business’s credit file allows other companies to determine whether your business has a track record of fulfilling your financial obligations.
Companies that offer credit often have objective and subjective criteria to determine business creditworthiness. Objective criteria may include sufficient cash flow and a history of on-time payments, while subjective criteria may include being deemed as easy to work with and trustworthy.
Your business credit scores and ratings can impact a variety of business relationships, such as potential partners and vendors, but it’s an especially important consideration if you’re looking to borrow money or open a line of credit or credit card. Good scores and ratings might allow your business to get better terms on these financial products, while the opposite might mean higher interest rates and less flexible terms.
[Read more: What Is a Business Credit Score, and Why Do You Need to Know Yours?]
What factors impact a business’s creditworthiness?
The main variables that impact your business’s creditworthiness include:
- Years in business. The number of years your business has been operating directly impacts your business scores. Businesses that have been operating longer are typically seen as more stable and reliable, given they are in good financial standing. Startups often face stricter loan terms than established companies because there is a lack of access to external funding and, therefore, credit history.
- Payment history. The repayment of loans within terms can help build business credit. But keep in mind not all lenders report payment activity to business credit bureaus. Businesses that pay their bills on time may positively impact their PAYDEX® Score — a business score generated by Dun & Bradstreet (D&B) that measures how often you pay back suppliers and vendors on time among other factors. A positive PAYDEX® Score can make your business more attractive to potential lenders.
- Financial statements. Your business’s financial statement provides a glimpse into its overall financial health. A financial statement shows the company's position concerning its assets, liabilities, and equity, as well as its ability to meet future financial obligations. You can enhance your credit evaluation by submitting trade references to D&B.
- Public records. Bankruptcy filings, tax liens, judgments, collections, and other filings reveal the past financial behavior of your business. These negative public records can signal to potential lenders that your company is experiencing financial stress, and therefore adversely affect the overall creditworthiness of your business.
- Industry norms. Factors like industry-specific earnings, debt load, competition, and your business’s geographical location are all evaluated to determine its creditworthiness. The comparison against your business’s specific industry standards helps potential lenders determine where you fall on the creditworthiness scale.
Your business credit scores and ratings can impact a variety of business relationships, such as potential partners and vendors, but it’s an especially important consideration if you’re looking to borrow money or open a line of credit or credit card.
The importance of business credit monitoring
Business credit monitoring equips businesses with insights into their overall financial health, creditworthiness, risk level, and viability. By monitoring your credit profile, you can become more educated about the activity on your credit file and how it impacts your business’s success. Plus, business credit monitoring informs you of the businesses and industries making inquiries, as well as the type of information they are requesting to make their own decisions about your business.
Monitoring your business credit also helps you become aware of new activity on your credit file that could negatively impact your business. Proper business credit monitoring will show any lawsuits, liens, or judgments affecting your business as they arise, so you can be armed with the knowledge about these factors should another company question its impact on your business.
Business credit monitoring can even help protect your business from identity theft, an increasing threat as workplaces become increasingly reliant on digital infrastructure. Since your credit profile will reflect new activity as it arises, you can dispute any activity that may have come from outside your business.
[Read more: 4 Essential Steps to Protecting Your Business Credit]
How to monitor your business credit
Businesses of all sizes should take business credit monitoring seriously. Entrepreneurs and small businesses, specifically, should take a particular interest as they often face more challenges when looking for funding or capital.
By using the solutions offered by a business credit reporting agency like D&B, you can keep a close eye on your business credit and make necessary adjustments to improve your scores. Staying informed about your business’s creditworthiness can help you get financing, manage your business operations better, and grow in the future.
With D&B Credit Insights, small business owners can become more informed about their business’s credit. If you are new to credit monitoring, D&B helps provide the fundamentals of your credit information and what it means for your business’s creditworthiness.
Real-time alerts to your business’s credit scores and ratings allow you to act fast when potential issues arise, while payment history information can help you spot patterns and make adjustments as needed. Plus, Credit Insights can help you position your small business as reliable and trustworthy to suppliers, customers, and partners, which can lead to more favorable financing terms from potential investors.
Here’s what real Dun & Bradstreet customers are saying:
- “Great information, and value! Our organization uses D&B Credit Insights to monitor our business credit to receive the best rates possible when applying for lines of credit, etc.” — TrustRadius User
- “We use D&B Credit Insights to keep track of our business credit report and any errors or mistakes that may be on it. It serves as a good comparison for how our company is performing compared to other businesses in the industry.” — TrustRadius User
Are you ready to start monitoring your small business’s credit to improve your company’s financial health? Visit D&B Credits Insights to learn more.
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