During the initial stages of building business credit you have probably seen the numerous articles, books, and posts explaining the importance of starting with vendor credit, which is also known as trade credit.
However, one of the biggest mistakes made by small business owners during this stage is applying for the wrong vendor accounts that grant instant business credit.
While some business owners believe that the more the merrier is a sound strategy for business credit, I tend to totally disagree. The reason is that simply getting approved for vendor credit is one thing but what really matters is three critical factors that seem to never get mentioned:
- High Credit
There are over 500,000 vendors extending credit to businesses, but fewer than 6,000 of them report to the business credit bureaus! So part of any sound business credit building strategy should include careful selection of vendors that report to the business credit bureaus. It’s also important to note which business credit bureau they report to.
You will need to select vendors that not only report to the business credit bureaus but also report on a monthly basis.
Why is reporting on a monthly basis so important?
The reason is there are vendors who do report your payment history but only on a quarterly or even yearly basis. Time is of the essence so if your payment experience is not reporting until months later this can drastically impact the speed in which you plan to build a strong business credit file.
An example of an instant business credit vendor that reports on a monthly basis is the company Quill.
Quill sells office supplies, cleaning supplies, packing and shipping supplies, school supplies, printing supplies, and more. From filing and storage to hand-held computers, Quill has a wide range of discounted name-brand products.
Quill offers a net 30 account and reports to Dun and Bradstreet. Best of all, they report your payment history every 30 days. For small orders you can get approved with a listing on the 411 directories and have a working website. New businesses can start out with smaller limits that will increase when you pay on time every month.
Unfortunately there are vendors who report the balance owing as your high credit limit on your business credit file and not the true credit limit your business has been approved for.
For example, let’s say you’re approved for a $2,000 credit line with a vendor and you purchase an order of $50.
The incorrect reporting by this vendor shows:
High Credit ($) 50
Now Owes ($) 50
The correct reporting by the vendor should reflect:
High Credit ($) 2,000
Now Owes ($) 50
It’s always best to select vendors that report the true high credit limit that your business has been approved for and not just the balance owing.
This factor alone can impact the credit limit recommendation suggested for your business, which is provided by the business credit bureaus in your profile report.
While you can obtain instant business credit for your business, the process of building a strong business credit profile and score does take careful planning and a sound strategy. By revealing these three critical factors I hope to make the process easier and more effective for you.
As long as you select vendors that report, select vendors that report in a timely manner, and screen for vendors that report true high credit limits, then you are well on your way to business credit success!
Marco Carbajo is founder of the Business Credit Insiders Circle which helps small business owners start building business credit.
You may contact Marco directly at: email@example.com