Most business owners have probably looked at their personal credit reports through at least one of the three major reporting organizations—Equifax, TransUnion and Experian—and occasionally glimpsed something called a FICO score. Electrical contractors know this information can affect the terms of agreements with lenders, sureties, vendors and customers. But how often do they also check the company’s business credit reports or FICO scores? Rarely, if ever.
Maintaining a clean business credit record involves more than updating and verifying the information on your Dun & Bradstreet report. You should also update and correct the information gathered by Experian Business, Equifax Business and Business Credit USA. Any of these sources may be used to evaluate your company’s financial health. Your business credit report provides an important financial snapshot of the business, and outdated or incorrect information can affect creditor, lender and potential customer decisions.
Your failure to monitor your business’ credit profile not only increases the risk of paying higher interest rates to obtain credit from lenders, but also it may result in losing your line of credit altogether or cause your bank to call for immediate payment of outstanding loans. If your customer relies on a credit report that contains errors, it’s even possible that you might lose that big project you’re counting on to cover your overhead for the next quarter.
In addition to qualifying for more attractive interest rates and credit agreement terms, your business may also qualify for lower bonding rates. The resulting overhead-cost reduction provides the flexibility to offer more competitive pricing to preferred customers and still earn a reasonable profit on your work. Raising capital is also easier with a higher business credit score that will attract investors other than members of your family, and if you are considering a public stock offering, it is absolutely essential. Maintaining a high score can even reduce your personal liability and protect your assets by minimizing the possibility that lenders will ask you to provide a personal guarantee.
What’s on your business credit report? It will include background information about ownership, subsidiaries, industry type, location and number of employees. Financial information is compiled from annual reports, financial statements and feedback from stakeholders who have done business with the company. Your payment history with vendors, lenders and other creditors, along with any collection delinquencies, defaults, lines, judgments or bankruptcies, will be gleaned from public records.
If you have had cash flow problems that caused a pattern of late payments or damaged your relationships with vendors, it is worth your time to try to rebuild that trust. Ask what you can do to earn back the goodwill you have lost. When you have redeemed yourself, request that they contact the three credit bureaus, plus Dun & Bradstreet, and provide more positive references. Offering deposits, prepayments, early payment and even cash on delivery on your next few orders can quickly erase a spotty history and earn new respect from your suppliers.
On their websites, credit reporting organizations offer a variety of useful tools and a wealth of information about business credit. Many of the services are available at a very reasonable cost, and they will help you evaluate your own customers and suppliers. If it has been a while since you did some research, here are a couple online resources to help you get started.
The Experian website offers an interactive Business Benchmark Report (www.businesscreditfacts.com/map) that enables you to search by industry, number of employees, and criteria such as bankruptcies, liens, delinquencies and average days beyond payment terms. Each search reveals a national map with states color-coded to a scale for the credit-related factor you select.
If you just started your electrical contracting business or haven’t yet appeared on the business credit bureau radar, registering your company is easy. Locate your Employer Identification Number (EIN) or Federal Employer Identification Number (FEIN) from your tax returns or bank statements. Apply for a Data Universal Numbering System (DUNS) number on the Dun & Bradstreet website (www.dandb.com/free-duns-number). Then register these numbers with the business credit bureaus.
All of these organizations offer subscriptions that provide access to information on potential customers, vendors and lenders as well as your own company. They also offer credit-tracking services, identity theft protection and information on managing your credit. Consider this investment in planning as another form of risk management. Spending a few minutes to establish an automatic system to track your credit status may prevent more costly and time-consuming efforts to rectify missed errors that surprise you when you are preparing your next loan request, renegotiating terms with stakeholders, or planning to sell your business to enjoy a leisurely retirement.