Having a good credit score is essential to your business. Your credit rating can help you get funding, increase your capital, and save money.
Once lenders and financial institutions see that your organization is creditworthy,they'll quickly approve your loan. Besides, other companies may decide to partner with your company, or you might attract investors.
However,you’d need to use an effective expense management system that involves budgeting, setting financial goals, and tracking your income and expenses to keep an excellent credit score.This procedure can be tedious for businesses, and problems may crop up.
There are various steps to take to avoid a negative cash flow and maintain a high credit rating. Here are some daily expense management problems, and actions that will mitigate them:
Revenue and Expenses
Businesses have fixed and variable expenses.
Fixed expenses are long-term payments that don’t fluctuate. Examples are rent expenses, loan payments,and subscriptions. On the other hand, variable expenses can change depending on your company's production and sales activity. Variable expenditure, like wages,the price for inventory, and shipping cost, can increase.
Spending more may constitute a problem to your business because it reduces profit. Your expenditure will also rise if you subscribe to a new service or take up another loan.
Whathappens when customers pay for your products late and your business income gets delayed? Late payments affect cash outflow, especially when your cash reserves are low. You might not have enough money to pay staff or spend on production expenditure because your clients are owing.
Factor Your Company's Finances
If there are too many funds tied up in accounts receivables and you’re yet to receive any payment, you can factor your organization’s finances. Another company will buy your debt or invoice at a lesser price and collect the money for themselves.
Let’s say you have an invoice of $1,000. You can factor it for 95% of the amount.Alternatively, the third party can pay you 85% of the invoice amount immediately and pay 15% minus the agreed charges once they collect the money owed.
When you factor debts and invoices, you’ll have available funds to run your business and maintain your credit score.
Business Credits Application
Lengthy and Confusing Business Credit Application Process
Before you apply for credit, you’d need to get a credit report. The lenders will review and approve the loan if your business qualifies. They’ll ask for your cash flow and bank statement, tax returns, business documents, and sales projections.
This process can be gruelling, confusing, and time-consuming. Your credit score report might have inaccuracies, and the lack of transparency when obtaining credit might become frustrating.
Use A Reliable Financing Provider
It’s vital to get financing from a reputable institution. Scrutinize every process and make sure that the lender's loan requirements are suitable. You can compare services and reviews of different companies.
You’d also want to ensure that the financing provider is secure, transparent, and fits your business processes.
Delayed and Unpaid Expenses
To stay on top of your finances, you’d need to have enough funds to pay your bills. But sometimes, you might delay some payments or forget to pay up accrued bills. Also, if you don’t track finances accurately, you might forget to pay suppliers or creditors.
Delayed and forgotten expenditure harm your credit score. This problem reduces your organization's ability to get financing for growth and expansion.
Track Your Expenses
Tracking your expenses helps you make payments on time. You'll also notice tax deductions and utilize them. Here are three ways to track expenditure:
Open Financial Accounts:
Open separate financial accounts for your organization. That way, you'll separate personal funds from business funds. You may need to get a savings and checking account and a credit card.
Digitize Your Payments and Receipts:
It’s easier to spend cash and harder to track it. When you pay with cash, you get paper receipts that can fade and become unusable during tax season. Digital payments are recorded in your bank statement and come with receipts. This double recording acts as a backup and enables you to track all expenses.
Reminders & Notfications
You may also want to set up notifications and reminders for future payments to make your transactions seamless and help you maintain a good credit score. Another option is to scan physical receipts and save a digital version when you can’t avoid them.
While managing business expenses, several problems might crop up. Your costs might increase; you might not track payments, or pay suppliers and creditors on time. There's also the problem of delayed revenue and a time-consuming credit application process that can be confusing.
ZayPay is a corporate expense management software that helps you make international micropayments. It’s a technology-based solution that can help you manage your expenses effectively. With ZayPay, you can add expenses on the go and track your payments. That way, you'll save time and accounting costs while maintaining an excellent credit score.