It’s time to review those nasty warning signs that can damage your company’s creditworthiness. While it’s not uncommon for your business scores to fluctuate over time there are a few strong indicators that can help you avoid getting your company labeled as having bad business credit.
So, let’s take a look at the seven early warning signs that your business may be headed for credit problems.
Paying Invoices Beyond Terms
This is a strong indicator that your company may be experiencing financial difficulty. While paying 7 days past the due date is pretty standard in the industry anything beyond that can have a negative impact on your credit files and scores. Avoid paying your invoices late at all costs and better yet pay them ten days prior to the due date for an even stronger credit rating.
Higher Debt to Credit Utilization Reaching if not exceeding the credit limits with your trade accounts are a sure sign that your company is becoming over extended and may face difficult financial challenges in the near future. Keeping your overall debt to credit limit ratios below 30% and no more than 50% is much more stable in the eyes of lenders.
Account in Collection Defaulting on a credit obligation is never a good sign and can easily raise a red flag with a potential creditor. Not to mention the negative impact it will have on your scores and credit limit recommendation. You should always work to resolve an account that is in collection. Once you settle the debt always obtain a document from the creditor or collection company stating the account has been settled by your company.
Applying for credit with multiple creditors in a short period of time can trigger a red flag. This may be a clear indication to creditors that your company is financially desperate.
Change in Risk Category
While this applies to D&Bs rating system if your risk category changes from let’s say a class 2 to a class 4 then you have gone from being considered a low risk of financial stress to a high risk of financial stress.
Change in Financial Stress Score
A drop in your financial stress score in Dun and Bradstreet’s rating system signifies that your company has an increased level of risk. This number is influenced by your company’s risk category.
Derogatory Public Record Filing
Having a lien, judgment, or lawsuit filed against your company will have a severe impact on your company’s creditworthiness. Business credit bureaus gather this public record information from the Secretary of State and other trusted sources.
In today’s tough economy you should be diligent in protecting, maintaining and, if necessary, repairing your business credit to avoid your company being labeled a bad credit risk.
For more information on how to go about correcting errors, inaccuracies or obsolete information on your company files check out my post on business credit credit repair.
Care to share any other warning signs?
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Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for AllBusiness.com, a subsidiary of Dun and Bradstreet and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in American Express Small Business, Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.