When running a staffing business, managing your available cash is a delicate balancing act. He has to meet employee or contractor payroll every week or two, but his clients are usually billed at much longer intervals. You need to be able to meet your commitments, but every dollar sitting in your bank account is money not being spent on growing your business. So it becomes important to manage your credit well, so that when you have an opportunity to use that credit to grow your business, it’s readily available and available at a low cost.
According to the Small Business Administration, “Insufficient or delayed financing is the second most common reason for business failure. And, since most loan decisions under $100,000 are automated, the business credit file at will often dictate the amount and terms of a loan For businesses with poor credit ratings, major national banks can raise credit card interest rates on average from 9% to 18% and loan interest rates by average 8% to 12%”.
Here are some tactics to help you get the most out of your credit.
establish your credit
Credit is like a muscle. It’s strongest and most flexible when exercised regularly and responsibly, so when you have the opportunity to land a big client, you can get the resources you need without paying an arm and a leg. Here are some ways to jump-start your business credit.
- Go into business for yourself: Many small business owners run sole proprietorships, which are tied to the owner’s personal creditworthiness. Talk to your financial expert about incorporating the business on your own, perhaps in the form of a limited liability corporation, to separate the business from your personal affairs.
- Build and maintain good credit: Good credit is earned by owing money and paying it back on time. Make sure your vendors report your payment history on time to credit reporting agencies, so financial institutions can build an accurate picture of your good standing.
- Be vigilant: Any negative information on your credit report can have a detrimental effect on your ability to keep your cost of funds down. Regular monitoring of your reports can alert you to any changes in your credit standing before it affects your business.
payroll financing
A common source of credit for staffing businesses is accounts receivable financing, or “factoring,” the sale of future money owed on your company’s accounts receivable for cash. Because you’re only spending money you already owe, it’s popular with businesses looking to limit their debt exposure. This available cash can be used to meet payroll commitments and make timely payments to suppliers, while maintaining your good credit rating.
Smart, healthy credit management gives your business the flexibility to meet daily commitments and the potential strength to make big plays when you need to.