Poor credit can sneak up on you if you run a small business. Maybe you borrowed a little more than you expected to start your company, or a customer has fallen behind on payment, leaving you scrambling to cover your bills.
These things happen all the time in the entrepreneurial world. Rather than beat yourself up, it's better to devote your mental energy to getting back on track, so you can stay focused on growing your business.
Here are four tried-and-true strategies to solve a credit crunch without sacrificing growth:
1. Collect Payments Promptly
By getting invoices out the door the day as projects are completed, you can greatly improve your cash flow. When you're caught up in the daily rush of running a business, sending out invoices can become an afterthought. Unfortunately, this can leave you short on cash and dependent on credit to get out of financial jams. By collecting payments more quickly, you'll be able to stay on top of your bills, while reserving credit for purchases that truly move your business forward.
2. Think Beyond the Credit Card
Credit no doubt keeps businesses — and the global financial system — moving, but there are options beyond traditional credit card companies. It's a lesson that helped Temeka Group, a Southern California-based design and installation firm, escape a tricky financial situation.
During a period of rapid growth several years ago, Temeka Group's credit took a hit. Nonetheless, with employees traveling all over the country and paying for airfare, hotels and gasoline on their trips, the firm needed a way to give their employees access to company funds. They found a solution in PEX.
With the PEX Visa® Prepaid Card, employees got immediate access to money in the field, and finance staff could better monitor employee spending — all without hindering growth. “It made life easier for employees in the field” says Marlene Kelly, CFO at Temeka Group. In the meantime, Temeka Group built back it's credit, continuing to support remote employees who drive the company's growth.
3. Keep Close Tabs on Spending (But Don't Overdo it)
If you're going to grow your business, you need to invest in it. But just because you have a poor credit score doesn't mean you shouldn't spend money. Hardly. What's important is spending wisely. Have someone in your finance department track and review your team's monthly spending to identify leaks that contribute to cash flow shortages, such as late payments. Plugging a few of those holes can free cash for you to use to pay any high balances on your credit cards, which will lower your credit utilization and improve your credit score.
4. Tie Up All Loose Invoicing Ends
A recent study by insurance giant Euler Hermes found that business bankruptcies in the U.S. are expected to climb by 3 percent annually in both 2016 and 2017, after six years of steady decline. With more businesses at risk of instability, it's a good idea to follow up quickly on overdue invoices to B2B customers, instead of waiting 60 or 90 days to check-in. That way you won't have to worry about any customer's financial situation destabilizing before you get paid.