Ideally, you don’t ever want to have to report another small business in a negative way, but it happens. There are two good reasons businesses report commercial credit to the four credit bureaus: to encourage on-time payments and to decrease the chances of a default on payments and needing to come up with other ways to collect on those payments. In deciding whether to use the carrot or the stick in reporting commercial credit, let’s consider both options and why they’re helpful.
You Have More Than One Carrot to Dangle
We already know that people are more likely to do something if they’ll benefit from it. That’s what the carrot concept offers. The carrot lets your businesses know that if they make payments on time, it’ll positively affect their scores. At the end of the day, those who are in need of commercial credit are either risky to lend to or they’re not. A business’ credit scores, as reported on Equifax®, Dun and Bradstreet®, Experian® and other major companies, are the most important aspects of their credit line. If a business makes regular on-time payments or even early payments, that reflects positively in their scores and their future lines of credit among different vendors.
That’s a Pretty Big Carrot
According to CreditKarma, each major company that reports business scores has their own way of determining a business’ credit score. Dun and Bradstreet® uses a Delinquency Predictor Score, Financial Stress Score, Supplier Evaluation Risk Rating and a PAYDEX® score. Other major companies have their own methods for determining scores. What it all boils down to is that regular on time or early payments to vendors improve business credit scores. This can mean a greater amount of credit in the future with lower interest rates because better credit scores mean that a business is less risky to loan to.
Reporting Commercial Credit Regularly Gives Businesses an Edge
It’s in the best interest for a business to have lower interest rates and a greater line of credit. These are determining factors in securing future credit lines and potentially saving thousands of dollars. Being able to secure credit exponentially increases profits and determines whether a business will grow or whether it will close. Entrepreneur.com says, “A business credit score also determines whether a business can use their credit as a means for leverage to help their business to grow. If a business can’t keep up with their competitors, they will be forced to close.”
Be the Company That Reports
Reporting commercial credit isn’t required. Hypothetically, a business could go years and years without ever having anything reported on their payments, but this can also work to your benefit. You can use the fact that your business regularly reports as another carrot. With regular positive reporting, you help to build a business’ credit score, which will increase the chances that they’ll make regular on time or early payments to your business. This is an excellent opportunity for entrepreneurs who have less than stellar personal credit. Very few entrepreneurs are aware that they can establish business credit. Early payments positively affect a business’ credit score more drastically than on-time payments.
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