If Your Company Needs a Better Credit Score? Tell Your Suppliers to Share Data
Companies of all sizes looking for a better business credit score and cheaper financing should ask their suppliers to report their accounts receivable data to credit reporting companies, according to the National Association of Credit Management (NACM).
Tightened access to credit in the wake of the Great Recession has affected businesses as much as it has affected consumers. Banks and other lending institutions have remained risk averse in what’s been an underwhelming economic recovery, and their decision not to loosen their purse strings has made it harder for consumers to start spending again, and for companies to start growing again.
When private sector lenders are reluctant, companies often turn to their trade creditors and suppliers as lenders of last resort. However, these lenders continue to do their due diligence. As reported in the September Credit Managers’ Index (CMI), even though businesses approved for credit were approved for larger amounts, the number of credit application rejections actually increased.
Current and accurate information about a company is of utmost importance in the decision to extend trade credit. If the information a supplier gathers about a company applying for credit does not reflect the true character of the company, the chance for approval can be lost.
One way for a company to increase its access to trade credit is to pay its existing suppliers according to terms, and to make sure that their prompt payment behavior is making it into a trade credit report. “Good payment behavior won’t help a company unless other suppliers know about it,” said NACM President Robin Schauseil, CAE. “One surefire way to let other trade credit grantors know about your company’s sterling payment record is to make sure that the companies your business is buying from report their accounts receivable data to NACM and commercial credit information companies
Trade credit is the largest source for short term capital. Therefore sharing accounts receivable data benefits the customer by allowing their industry to know how well they pay their suppliers, and it benefits the selling company by increasing the well of data they have to use in a credit decision. “The free flow of accounts receivable information is vital to the success of the American economy, and buyers of good character looking for the trade credit they need to grow should see to it that the business community knows they pay their bills on time,” said NACM President Robin Schauseil, CAE.
On behalf of our members we thank NACM President Robin Schauseil, CAE for this important recommendation!