Many companies do not realize the value of the “good credit” stamp until the stamp of “slow pay’ or “poor credit” is affixed to their business name. Your credit rating will affect everything from the discount you qualify for on credit purchases, to the amount of credit you may be extended by the bank.
Most of the same rules apply to businesses that apply to your personal credit. There are a few exceptions. Dunn and Bradstreet are the credit regulators when it comes to business credit, not the Experian Credit Bureau. Second, your D&B rating is a little more complicated than the personal credit rating, and is affected by almost everyone you purchase goods from. Small vendors, large companies, even the guy that sells you toiletries, can report your payment habits to Dunn and Bradstreet.
Once your rating falls to a certain level, it can take years to return it to an excellent rating, during the time between, many opportunities for discounts, extended credit terms, and even lower percentage rates on the interest your charged pass you by.
Let’s learn from example. Suppose you supply caps to local baseball teams, imprinted with their logo. You can turn around 300 caps each and every day, if you have all the supplies you need.
Day 1 (Friday): You are approached by the Braves baseball team about an upcoming tournament. They would like for you to supply every participating team’s caps. There will be approximately 40 teams, with 20 players per team. Now, that’s an order worth taking. The team captain for the Braves team tells you that he will know the final count on Tuesday; can you have the caps ready by Friday afternoon at 5? Sure, that should not be a problem. You have 300 caps in stock; you can order and have the remaining 500 in house by Tuesday morning.
Day 2 (Monday): You place a call to your cap supplier. You provide the style, size, and count that you need, and ask if that can be shipped today for delivery on Tuesday morning? This shouldn’t be a problem; you deal with this supplier all the time. But today, it is a problem. He has your account on hold, due to lack of payment. You haven’t mailed the payment for your last shipment. The only way he can send the caps will be COD (cash on delivery), and the order comes to $2,689.14. The only problem here: You won’t have that much cash until the baseball teams pay you.
Day 3 (Tuesday): You telephone the Braves captain to request advance payment. No way, the other teams aren’t even in town yet. You have no choice but to call the local bank and ask for a short-term loan. The caps arrive via UPS, COD, but you’re at the bank requesting a loan. You miss the cap delivery on Tuesday. You can’t get the loan until Wednesday after 12pm. No caps till Wednesday, no way to complete the order.
Does this picture paint for you the grim reality of poor or slow credit? Can you see the real dilemmas created just from a lack of organization and discipline? Your credit is a very important and useful tool. Protect it, use it wisely, and your credit can open doors, create opportunity, and pave the way for the success of your business.
