Fixing Business Credit Report Mistakes

Business Credit Report Mistakes Don't Add Up

As a kid, few consequences were more frightening than the threat of having something go on your permanent school record. Any slip-up, large or small, could go on this life-determining record. The prospect of a tainted record was all most of us needed to sit up straight, respect our teachers, and resist the temptation to shoot a spitball at the blackboard.

Your credit report is the adult equivalent to your school record. You even get graded for it. It also has real-life consequences. What happens if your business credit report comes back with mistakes? That’s like having an expulsion on your record that never happened.

Fixing business credit report mistakes isn’t simple,  but it’s not impossible either. Be prepared to make several calls, carefully go through your company’s financial records, and remain vigilant. As challenging as this may seem, it’s worth it in the end. Plus, you can keep an eye on your big picture financial metrics with PayPie.

Finding business credit report mistakes

Before a potential error on your business credit report makes you shake your fist at the sky in anger, check your books. Rule out any possibility that you may have left out important information in your own recordkeeping. Think of it as the “Have you tried turning it off and on again?” step.

You should also ensure that you know what your business credit report covers. Your credit score is a numerical value that distills your company’s record of paying vendors and creditors on time, the amount it debt it owes, the length of your credit history, and any new kinds of credit your business has (loans, lines of credit, credit cards, etc.). Credit reports from Dun & Bradstreet, Equifax, Experian, and TransUnion all provide you with a credit score for your company, as well as a rundown of your business’ credit history.

Request a report from each credit bureau

Business credit scores vary by bureau. Some even include slightly different information on their report than others. Equifax, Experian, and TransUnion all use a scale of 0-100, with 100 being the top possible score. Overall grade assessments will differ depending on the criteria used and how these factors are evaluated. This is why it’s a good idea to request reports from each agency if you suspect there might be a mistake.

Once you have credit reports from each agency, you’ll want to read through them all and see if the information they contain matches up with your business records. If you’re certain that your credit report has a mistake, there are plenty of reasons why that might have happened. Better yet, there are several steps you can take to fix it.

Improving your business credit score — where to start.

Business Credit Report Mistakes Not Right

Common business credit report mistakes

Some business credit report mistakes are more common than others. Most come down to human error. Here are some of the more common mistakes you might find on your credit report and how they got there in the first place.

1. Late payments from seven (or more) years ago

Your credit score should remove late payments if they’re seven years old or older. But this doesn’t always play out as it should. Sometimes, old late payments stay on credit reports long after they should. If this is the case, contact the credit bureau to contest the entry. They will either investigate the entry or simply strike it from your record if the claim is valid.

2. Credit accounts opened under a similar name

Credit bureaus aren’t perfect. Their data is often only as good as what gets reported to them, which means that clerical errors can cause credit report mistakes. If a company with a name similar to yours opens a credit account, there’s a possibility that their information might get mixed up with yours.

3. Closed accounts listed as open

Your creditors should note when you close your account or you finish paying your loan, but mistakes happen. Old credit cards or a closed business line of credit can show up on your current credit report due to clerical errors. This could accidentally signal to credit agencies that you have more credit accounts open than you actually do. In turn, it may suggest that your company is borrowing more than it should. Be sure to look for old credit accounts and loans on your report. Then check with your lenders to make sure they’re no longer open in their system.

4. Paid tax liens from seven (or more) years ago

Old tax liens on your credit report are similar to late payments. They no longer belong on your credit report if you paid them off and they’re seven or more years old. Most agencies will remove lien records once the seven-year mark hits. If you see an old lien on your credit report, reach out the credit bureau and request that they remove it.

5. Inaccurate credit limits or loan amounts

Credit agencies determine your score based in part on the maximum amount you’re approved to borrow (your credit limit), and the actual amount you’re currently borrowing (your loan amount). If this information is incorrect on your credit history, you may appear to be borrowing more money than you should — even if you’re approved for more than the report suggests. Make sure your credit limit information, loan totals, and remaining balance are all correct when you review your credit report.

6. Fraudulent activity linked to your business

Of all the potential sources of credit report mistakes, fraud is the most vexing. Credit fraud is all too common these days, with more than $3.7 trillion lost due to business fraud in 2017. It’s not always easy to keep track of daily cash flow, which can help prevent fraud before it happens.

The differences between business and personal credit.

Who to contact to fix business credit report mistakes

The process by which you fix business credit report mistakes varies depending on the kind of error in question.

When to reach out to vendors first

If your payment history with a vendor is inaccurate, contact the vendor before going to the credit bureau. Credit agencies rely on vendors for payment history information. So start by going to the source. Reach out your contact or someone within the accounts receivable department. This process also helps in clearing up confusion involving a similarly named company appearing on your business credit report.

When to reach out to creditors and lenders first

Give your creditors or lenders a call if your credit limit, payment history, or loan totals look incorrect. Odds are that they may not have updated your business’ profile. The same holds for any closed credit card accounts or loans that still appear to be open on your credit report. The creditors and lenders themselves are the first points of contact that can help clear up any issues regarding your use and repayment of credit. Again, it’s a matter of going directly to the source.

When to contact the credit bureaus first

There are a few reasons for reaching out to a reporting agency directly. The most common instance is when the other third parties can’t shed light on the mistake. You would likely reach out in cases where an old tax lien or delinquent payment still appears on your credit history after the seven-year mark expires. Or if you’ve solved the problem with the primary source, but your report itself is still incorrect.

When you have to fix an error on your credit report, the first thing to do is stay calm. Next, be patient. Fixing business credit report mistakes may take a while — and you may need to contact a few different companies to get things fixed.

Track your credit in near-real-time

Knowledge is power, particularly with regard to your company’s overall financial health. PayPie’s cash flow analysis helps you forecast future cash flow and track other key metrics like income vs expenses or where your greatest strengths, exposures, and opportunities lie.

Your business risk score, featured prominently in the report dashboard, is generated using a sophisticated algorithm along with the current data in your small business accounting software. This score (from 0 to 100) gives you a sense of how third parties, especially lenders, view the financial strength of your business.

main dashboard and ratios

PayPie is currently compatible with QuickBooks Online and more integrations are in the works.

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels.

Traditional Term Loans: Understanding The Essentials

term loan main image

Whether or not you realize it, there’s a high likelihood that you know what a term loan is. Or at least understand the concept. (We’ve talked about them before here at PayPie.) Term loans are the most traditional type of business financing available, where you work with a lump sum of capital and repay it in fixed installments along the way.

Term loans are great products — but not for every use case or every business owner. There are, however, ways to know if and when you should apply, or if there’s a better alternative available.

How term loans work

With a business term loan, you work with a lender to obtain a lump sum of capital that you borrow for a predetermined amount of time. You work out terms with your lender that are contingent on your creditworthiness, business history, and the amount of capital you ask for. And, once approved, you receive all of the cash at once.

Every lender will want to know what you’re doing with the money before you get the green light. But some term loans have restrictions on what you can and can’t do with the money, while others don’t.

But, essentially, term loans are business loans in the most traditional sense that most are used to when they think of financing. You borrow money, and you repay it through fixed payments, with interest, until your set term is up.

Short- and long-term business loans

Term loans come in a few flavors, so to speak. Short- and long-term business loans differ in — you guessed it — their term (how long you have) to pay back the money.

With short-term loans, you’ll generally have faster access to capital with shorter approval processes and less stringent requirements for qualification. The tradeoff is that the terms are less favorable. That means a higher interest rate and a shorter period by which you’ll need to pay back the cash. A short-term loan is generally a loan that lasts less than a year, though they can sometimes extend to around 18 months. Repayment on short-term loans is also usually daily or weekly.

With medium- or long-term loans, the process slows down. As you’d expect, these have longer repayment periods than those of their shorter counterparts, sometimes by several years. They often lower interest rates, too.

As a result, though, these loans only go out to more qualified borrowers, and the underwriting process takes longer. After all, a bank or alternative lender doesn’t want you to have their money for years if you’re not going to be responsible with it. On these term loans, you’ll generally have monthly repayments.

How Cash Flow Forecasting Maximizes Business Funding 

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Term loans vs. other types of business loans

Although the most traditional type of business financing, term loans aren’t the only kind, of course. These are a few common alternatives and their most relevant uses:

  • Business line of credit: Instead of a lump sum deposited into your bank account, a business line of credit works as a sort of hybrid between a credit card cash advance and a term loan. You’ll work with a lender to get approved for a sum, but you only use what you need — and only pay interest on what you draw. It’s a great solution for many business owners who want access to fast capital, but don’t necessarily want to have a large interest payment looming over their heads.
  • Invoice factoring: An expensive short-term loan isn’t usually the best solution for an entrepreneur with liquidity issues. Invoice factoring lets you sell unpaid invoices to lenders (factors) who’ll pay you a percentage of the invoice, work with the vendor to collect the balance and return the rest to you, minus interest and fees, when the balance is paid. It’s an excellent alternative for capital tied up in trade credit, and generally more cost effective than other types of shorter-term financing.
  • Equipment financing: If you don’t need working capital, and are rather looking to finance a specific purchase of gear for your business, you should consider equipment financing. As what’s called a “self-collateralizing” loan, equipment financing uses the equipment funded with the money you borrow to secure the loan. For that reason, some borrowers with less-than-perfect credit can obtain this type of business financing.

The 5 C’s of Business Credit Explained 

The best uses for a term loan

You can seek a term loan to finance a lot of different scenarios over the life of your business.

For one, a term loan is a good source of working capital. In other words, you’d borrow from a lender in order to have a source of money to spend freely on general day-to-day operating costs (as opposed to directly investing into an asset). If business owners are in a cash pinch, it’s fairly common to seek out short-term financing in order to supplement their cash flow.

Times when short-term loans make sense include:

  • Making payroll or paying taxes.
  • Funding a marketing campaign.
  • Opening up a new location or expanding into a new market.
  • Financing the creation of a new product or service.
  • Covering a one-time expense, like an emergency repair.

Longer-term loans are also good for specific investments or asset purchases. You can also use a term loan to refinance existing debt — meaning if you have an existing loan and you’re in a better financial position with better credit history, you can work with a lender to refinance into a less expensive product with more favorable terms.

6 Ways Business Funding is Used by SMEs

And when you wouldn’t want to apply for a term loan

Taking on debt is never preferable, of course. But if you’re going to apply for business financing, the benefit of a term loan is its predictability. You apply for a fixed amount of money. And, when you work with a lender, you’ll know up front how much you’ll owe each month, plus how much the loan will cost you by the end in terms of its interest plus principal.

If you’re not entirely certain that your investment will yield results, or you’re in a somewhat precarious financial position, taking on a term loan might not be advantageous. There are other financing instruments, like those we mentioned above, that could be a better fit for you.

Additionally, term loans almost always require collateral. You want to make certain that you don’t put your business in a situation in which you’re taking on debt that you aren’t sure you can afford. That puts your collateralized assets at high risk — and could ultimately jeopardize your entire company, especially if your lender requires a blanket lien on your tangible assets.

How to apply for a business term loan

If a term loan is a fit for your business’s needs, you’ll need to work with a business lender to obtain financing. You have a few options: You can go directly to a bank or credit union, or work with an online lender (alternative lender).

A bit of context is helpful before we go further, though. Small business lending took a big hit during the 2008 financial crisis. And although Main Street lending rehabilitation was meant to be a  mandatory provision within the government’s Troubled Asset Relief Program (TARP) bailout, rehab help never quite made it into practice. Ten years later, the vast majority of American small business owners still find it very difficult to get loans from institutional lenders like banks. They can be picky with their candidates — and they are.

While that little recap covered the United States, SMEs around the world face similar challenges accessing funds through institutional lenders. Worldwide, there’s an unmet funding need of $2.1 – 2.5 trillion.

See our comprehensive list of cash flow statistics.

Where to look for a term loan

Let’s start with those bank loans. If you have several years in business, strong and consistent revenues with a consistent track record, and excellent credit, you could be a good candidate for a bank loan. As a new business, you’ll definitely need to look elsewhere. Because banks don’t lend out much money to small business owners, they can be choosy — and they’ll choose the least risky candidates. To them, that means ones with proven dependability with debt. An existing relationship with a bank is often helpful, too.

Alternatively, online lending has emerged in recent years as a response to the lack of available capital for small business owners. Qualifications won’t be as stringent with most online lenders, but their terms will be slightly less favorable as a result. You can apply for term loans directly at lenders’ websites, or through online loan marketplaces, who can submit your information to multiple lenders at once.

Recurring Revenue — 5 Proven Models

What lenders look for in a qualified term loan applicant

The most important thing to remember when trying to understand business loan application requirements is the lender’s job. It’s all about mitigating their risk.

There’s no way to conjure the future in a crystal ball to know whether or not they’re going to get back their money — that’s impossible. So, when evaluating your application, they have to make the decision based on your odds of paying them back. That’s all derived from your track record. And, since they haven’t known you for years and can’t sample just how good your product is or meet you to understand just how trustworthy you are, all they can judge are things including:

  • Financial statements, including your cash flow statement, balance sheet, and income statement.
  • Recent business bank account statements.
  • Credit rating — both personal and business.
  • Tax returns — both personal and business.

As with all business loans, requirements for term loans will vary from lender to lender.

As we mentioned before, banks and credit unions will require very strong financials. You’ll nee high credit scores (generally very good to excellent) as well as more than a couple of years in business under your belt with good earnings so they’ll have financials to analyze. Online lenders might require slightly less solid credit or revenue numbers and a little less time in business.

That said, term loans aren’t the best options around for new businesses. Most lenders require some established financial track record for your business to qualify. Startups simply don’t have that.

5 Stories Your Financial Statements Tell 

The relationship between term loans and cash flow

There’s a deep connection between term loans and your cash flow. It starts before you even apply for one of these financing instruments, and continues after you’re approved.

Why lenders care about cash flow

Cash flow is an extremely important metric for small business lenders and loan underwriters. It’s a make-or-break factor that’ll determine whether or not you get approved for your loan.

And if you think about it, that makes sense — your cash flow reflects the money you have available to cover your loan payments. Lenders will evaluate your cash flow statement to make sure you consistently have enough cash on hand to cover both your operating expenses and your debt.

Before you apply for a small business loan, you’ll want to have been keeping a detailed cash flow forecast. It’s one of the only dependable ways to know if you’re in a position to take on the financing you think you are. In other words, see what lenders see — don’t be surprised!

Reporting, cash flow and business financial health

Where you’ll see your loan payments reflected

Got approved for a term loan? Great! Make sure you know where it’s showing up so you make sure you do make those loan payments and don’t fall behind. And, as we’re sure you’re unsurprised, your financing will appear on your cash flow statement, too.

What’s called your cash flow from financing activities (CFF) encompasses these outflows. At PayPie, we recommend running a cash flow forecast (like the one below) every month so you can see how your business’s CFF is affecting you.

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How to improve your cash flow position

No matter where you are in the term loan process, make sure you have your cash flow processes zipped up tight. An in-depth cash flow forecasting tool will help you on either end.

  • If you haven’t yet applied for a term loan — understanding the trends in your business and creating a forecast will allow you to get your finances in the best possible position for approval. And to get better terms for a less expensive loan.
  • If you’re ready to apply — have as many insights into your cash flow as possible so you never miss a payment — and you know as fast as possible if you’re going to come upon a cash flow gap.

Spot risk now, thank yourself later. PayPie’s insights and analysis also provide you with a risk score, based on numerous data points, that shows you how creditworthy potential lenders and business partners see you.

Signing up for PayPie is easy. Just create your free account, connect your business and run your forecast.

PayPie is currently compatible with QuickBooks online, and more integrations are in the works.

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels.

How Cash Flow Forecasting Maximizes Business Funding

Cash Flow Forecast Increasing Focus

You’ve probably considered business financing to help fund a new project or fulfill large orders. However, you might not know how important cash flow forecasting is in the approval process.

The fact is: Cash flow forecasting makes a huge difference to lenders. The more stable your business appears in the present and future, the more likely you are to get approved.

Getting a financing comes down to looking like a solid candidate in the eyes of your lending partner — the safer (less risky) your company appears, the more attractive you are as an investment.

Cash flow forecasting, like the kind offered by PayPie, gives prospective lenders a glimpse into what kind of operating capital your company has on hand and will have in the future. This demonstrates your ability to afford loan repayments, as well as the longer-term solvency of your business.

What cash flow forecasting helps you achieve

Before we dive into how cash flow forecasting maximizes business funding, let’s get into the details of how cash flow forecasting works. A cash flow forecast uses your current cash flow numbers to pinpoint strengths and weaknesses. When produced at regular intervals, such as each month, cash flow forecasts help you better predict your company’s future performance.

1. It pulls together metrics from your main financial statements

Using financial information from your income statement, balance sheet and cash flow statement, cash flow forecasting, like one created using PayPie,  helps you get the full picture of your finances. It does so by analyzing these numbers and providing a highly visual, easily understood report containing relevant ratios, charts and graphs.

2. It helps you measure and set benchmarks

If you’ve set benchmarks based on previous cash flow forecasts or through your cash flow budget, each new forecast you create gives you valuable insights into how well your company performed against these benchmarks. Cash flow forecasting can also help you fine-tune your benchmarks or set entirely new ones.

3. It tells you how much financing you can afford

Another pattern or trend that cash flow forecasting helps you visualize is where you stand in terms of financing. It can tell you how well your managing existing repayments. And if you need or plan to borrow additional funds, forecasting shows you how much new financing you can afford.

Read More: Essential Cash Flow Basics 

learning from cash flow forecasting

How cash flow forecasting helps you determine which business financing option you need

Cash flow forecasting doesn’t just help entrepreneurs visualize how money is moving in and out of their businesses. It also helps determine what kind of business funding you need in order to reach your goals.

Small business financing products are not created equal — some, such as a business line of credit, are better suited toward recurring situations in which you might need extra capital. Others, such as a working capital loan, provide companies with a one-time payment to help pay for general expenses across the entire business.

If getting funds quickly is your primary cash flow issue, invoice factoring.  provides you with an advance against the total of an outstanding invoice, giving you a lump sum in a matter of days. (If not faster in some instances.) 

By helping you pick the financing that fits your needs, a good cash flow forecast can even save you money. By assessing where your financing gaps are, you only borrow what you need. This helps you save money in the long term by not paying interest on amounts you don’t need or avoiding penalties from missed payments or misaligned products.

Read More: Cash Flow Forecasting — What You Need to Know

How cash flow forecasting affects the application process

Your cash flow forecast will also be of interest to your lending partner. For them, financing is all about risk. The more proof you have that you can afford to repay debts, the less risky your company appears. Good cash flow management signals to lenders that you’re able to assume the costs of repayment. This, in turn, demonstrates that your future financials can withstand this extra financial burden throughout the payback period.

Lenders also look at your 5 C’s of Credit when evaluating your application, and your cash flow forecast can go a long way in making these criteria more appealing. The 5 C’s of Credit are:

  1. Character: Your personal and professional credit history (past and present debts), as well as the personal profiles of you and your co-signers (your professional history, accomplishments, or other testaments as to why you’re creditworthy).
  2. Capacity: Your company’s ability to pay back the amount of the loan in question. Lenders want to see if your cash flow can support the additional debt and expenses associated with your financing.
  3. Capital: The amount of money that business owners have invested in their own company. Lenders like to see that entrepreneurs have put some skin in the game themselves before they provide you with cash.
  4. Collateral: What businesses can offer their lender in the event that they’re no longer able to pay back their loan. Collateral can consist of liquid assets or business equipment.
  5. Conditions: How borrowers intend to use their loans. For example, whether they’re using the loan to pay for raw materials or a new marketing campaign.

Cash flow forecasts impact several of your company’s 5 C’s — particularly your capacity to pay back your loan on time and without complications. They also reflect the collateral you can provide and the conditions for which you’re seeking the loan in the first place.

Read our full article on the 5 C’s of Business Credit

What else lenders look for in a cash flow forecast

Cash flow forecasts are akin to going under the hood of your company’s financial vehicle. They let lenders take a look at to review your one-off and recurring expenses, your income sources, your expectations for future financial operations, and whether or not your forecasting model is correct. In particular, lenders look at your cash flow forecast for:

  1. Future sales: Banks want to know about recurring revenue sources, as this demonstrates that your company is sustainable over time.
  2. Invoice payment timing: The timing of your accounts receivables and payables matters to lenders too, as it influences your company’s cash flow on an ongoing basis.
  3. Business costs: Whether or not your company has overhead issues also goes a long way in the loan decision-making process. Banks want to see how you’re spending your money, and whether or not your expenses are sustainable.
  4. Operational health: Cash flow forecasts demonstrate your company’s operating health. Banks want to know if you’re operating with a baseline level of success before making an investment. After all, few people want to lend to folks who can’t pay them back.
  5. Historical performance: As the old saying goes, history repeats itself. Your previous financial performance provides a benchmark for future activity. It also reflects whether or not you experience cyclical downturns or periods of financial instability.

There are other means by which lenders can get details on the aforementioned points. However, cash flow forecasts collate them into one document, which makes it easier to assess whether or not your business is as creditworthy as it appears in your application.

How to create a cash flow forecast

The best way to prepare an accurate cash flow forecast to maximize business funding is through PayPie’s cash flow forecasting tool. Our proprietary risk score, built into your forecast, also gives you insight into what your company’s credit looks like in near-real-time.

main dashboard and ratios

Just create your PayPie account and connect your business. QuickBooks Online users can start right now. And the entire process doesn’t cost a single dime.

PayPie integrates with QuickBooks Online. Other collaborations are in the works. 

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels and the PayPie Cash Flow Dashboard. 

Business Credit Cards: How to Use Them

Best Business Credit Cards Canada

A business credit card is one of many ways to pay for goods and services. They offer plenty of advantages over cash or debit payments — including the ability to make large purchases without having to pay for them all at once. There’s the convenience factor of letting multiple employees make purchases with the same account. And there’s also the rewards and perks programs.

However, a small business credit card can also help you manage your company’s cash flow — especially if you use it as your company’s primary purchasing tool. 

When used correctly, credit cards can streamline your company’s spending practices. But, you’ll also need to track your cash flow with PayPie to make sure your credit cards really work for your business.

How to use a business credit card strategically

When used effectively, business credit cards can provide interest-free financing, travel rewards or cash back, other perks and discounts on commonly purchased goods. They’re an easy way to give employees purchasing power and they come with reporting and fraud controls.

Using your business credit card for interest-free financing

Getting a loan to pay for a much-needed purchase can be a lengthy task for most entrepreneurs. And that’s not even delving into interest rates, which can leave a bitter taste in your mouth when you need to access financing. Spending on the business credit card you open, there’s an opportunity to use promotional interest periods to finance large purchases — all without having to pay a dime in interest.

If you and your business have an exemplary history with credit, you may qualify for a 0% introductory APR business credit cards.

As long as your credit limit allows for it, take advantage of your introductory interest rate to make large purchases and pay them back over time without interest. You can also time your purchases to correspond with other perks, such as cash back or points, if your credit card includes them.

Note: Not every small business is eligible for 0% introductory APR cards and they’re not available in every country. (Sorry, Canada.) Thankfully, there are plenty of alternatives out there — particularly in the form of non-traditional short-term financing

Earning travel or cash back with your business credit card

One of the most common reason entrepreneurs open business credit cards is the ability to earn travel rewards or cash back.

When looking at these kinds of rewards programs, know exactly what benefits suit your needs. Determine how you’d maximize your points or cash back. Then, pick a card that will help you get the most out of your purchases.

Keep in mind that reward programs vary substantially from one credit card to the next. Some cards only work with specific airlines. Others offer additional miles for purchases from specific categories or retailers.

Do the math to make sure you know which reward program will benefit you the most. Literally, take a look at your current spending and see how the cash back or points would stack up.

The Best Business Credit Cards in the United States | The Best Business Credit Cards in Canada

Using your business credit card for perks and discounts

While travel and cash back are pretty popular, there are other kinds of reward programs. These include reward points that can be redeemed for any range of goods and services and discounts on common business purchases.

If these kinds of perks are for you, consider opening a credit card account at a store you frequent for your business. For instance, if you’re a landscaping contractor, a reward card from a home improvement or garden store makes sense. Many big-box retailers and online stores offer credit cards that reward you handsomely for making purchases with them through your store card.

Take note, though, that these cards do not offer perks for shopping at other stores. And, in some cases, offer lower cash back amounts than you’d find with a conventional small business credit card.

If you’re interested in reward points, also be sure to know where you can use them.

Having more than one business credit card

Having several business credit cards can be a mixed blessing. Your credit won’t get dinged for having several credit accounts (as long as you pay on time). But you could get penalized if you apply for more than one card at once.

That, and having several credit accounts defeats the purpose of managing cash flow through your business credit card, as you won’t have only one card through which purchases are made.

Using a business credit card for employee purchases

It’s impossible for a small business owner to be everywhere at once. This becomes painfully obvious when you’re tied up with other work, but are the only person with the authority to make a last-minute purchase. Business credit cards are a solution that empowers employees while maintaining a comprehensive view of where the company’s money is going.

Most business credit cards provide account holders with additional employee cards free of charge and all transactions are recorded on the main account contact so that you can accurately track expenses. In a worst-case scenario, account holders can also close accounts or deny purchases in order to prevent fraud and control costs.

Looking at business credit cards and cash flow

How To Use Business Credit Cards to Track Spending

Making your business credit card the default way to pay for purchases lets you use your credit card statement/expense tracking software to get a snapshot of your company’s spending over a set period of time.

When you use your business credit card to monitor spending, be diligent.

  • Your credit account has to be a direct substitute for a debit card, cash payments, or checks.
  • If you’re only making some of your purchases on your card, you’re not going to get a comprehensive picture of your spending activity.
  • Once you’ve consolidated your purchasing methods to your credit card account, make sure you’re using the card like you would cash.
  • Don’t spend more than you can afford to pay off during each billing statement, lest you incur hefty interest fees that you could have otherwise avoided.

Remember that business credit cards can impact personal credit

Your business credit card likely included a personal liability guarantee, which means that you’re personally responsible for paying any business credit card debt that the company itself cannot afford. For example, if your company goes bankrupt, you’re still personally liable to pay for any and all outstanding credit card fees. In this regard, there’s little that separates your professional debts from your personal obligations.

Read More: How Business Credit Cards Affect Personal Credit

Track, track, track

Add your credit card account details into your accounting software. Most credit card companies integrate with tools, like QuickBooks Desktop or QuickBooks Online, so that your statement information can be added to your overall financial data and reports.

In turn, when you connect your accounting software to a cash flow forecasting tool, your credit card information will be included in your expense analysis.

Beyond the business credit card

For all the perks of using a business credit card to track and conduct day-to-day spending, this method is only one of many strategies out there for keeping your company’s financials in order.

As credit cards are only one part of the spending picture, every entrepreneur should conduct regular cash flow forecasts in order to track all a business’ inflows and outflows. The sooner you track your cash flow, the easier it is to spot seasonal trends or potential emergencies before they occur.

While keeping tabs on your cash flow, you can also monitor your company’s credit risk. Knowing how creditworthy your company is before you begin applying for credit cards can also save you a ton of paperwork later on.

QuickBooks Online users can get started today. Simply sign up, connect your business and run your free report — which includes a proprietary risk score.

PayPie currently integrates only with QuickBooks Online. Additional integrations are in development. 

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels. 

The 5 C’s of Credit Explained

5cs of credit chess pieces

Determining your company’s creditworthiness can feel like looking into a crystal ball. Although you might know some of the basics, it’s important to understand the 5 C’s of credit and how they make all the difference when you apply for business financing. 

The 5 C’s determine if your company has solid financials and is worthy of financing. They consist of your company’s character (credit history), capacity, capital, collateral, and the conditions of any loan offered. These key indicators help lenders get a rough sketch of whether your business is creditworthy — or if there is a risk that you won’t be able to repay your debts.

Before we go into explaining each component, we want to let you know that there are tools available to help you monitor cash flow and your overall risk profile. PayPie’s cash flow forecasting and risk assessment help you perform your own evaluation of your 5 C’s.

Breaking down the 5 C’s of credit

Lenders review mountains of credit applications every year, and statistics point toward this mountain growing even higher in the coming years. As a result, there’s just not enough time to go beyond the 5 C’s to evaluate your company’s credit risk.

The components represent the major determinants of your credit risk. Each element details how you manage finances, pay back lenders, and what would-be lenders can offer you. Here’s what each of the 5 C’s of credit means and how they impact your creditworthiness:

1. Character (credit history)

When lenders look into your company’s character, they’re determining your trustworthiness as a borrower. These factors consist of business experience, financial acumen, educational background, and a good track record of paying back any previous or existing debts. This is where your personal and professional accomplishments can make an impact. The more you’re able to convince lenders that you’ve got what it takes to build (and maintain) a successful business, the better your character appears.

Don’t be shy about your credentials if you want to ace your company’s character assessment. Mention any successful businesses you’ve started in the past, educational achievements, and prior instances where you’ve paid off loans on time. Include high-quality references from prior business associates and detail the professional experiences that you, your business partners, and employees have (especially if they’re brag-worthy).

2. Capacity

Capacity evaluates your company’s cash flow, and whether or not it has the capacity to repay the loan. Lenders don’t want to finance a business that may not have the income or resources to make repayment a sure thing. Lenders will look at the cash flow statements your company submitted as part of your loan application. They may also look at how long a company has been in business as a determinant of its financial health.

Read More: How Business Financing Options Affect Credit 

5cs of credit strategy coming together

3. Capital

Lenders like it when business owners invest some of their own money to get their company up and running. It signals that the founders are committed to their venture’s success. If you have not made a personal investment in your company (if you launched with external capital or startup funding, for example), you may not represent the kind of capital commitment most lenders would want to see.

4. Collateral

In addition to capital, lenders also want to know what assets you can use to secure your loan. Collateral can consist of liquid assets (your company’s cash), equipment, real estate, unpaid invoices, or other property. Secured business loans require collateral in exchange for approval, which allows your lender to seize your assets in the event that you can’t pay what you owe.

Not every loan requires collateral, however. Unsecured business loans give borrowers access to cash without offering their company’s assets in return. These loans are often easier to obtain than secured business loans, but require personal guarantees of repayment from applicants (meaning that you’re going to pay personally if your business can’t).

5. Conditions

Loan approval doesn’t only boil down to company success, personal accomplishments, character, or available collateral. It also depends on the purpose of your loan, as well as the overall stability of your company. These are also known as a loan’s conditions.

For example, the conditions of your loan appear more stable if you’re using it to buy the materials need to fulfill purchase orders. If you’re looking for general working capital to cover operating costs; however, your conditions may be less desirable. The logic behind these decisions has to do with whether or not your company’s underlying financials are strong.

Financing new business opportunities for a successful company is much different than financing operational costs for a business that might not be turning enough of a profit on its own. The former is less risky than the latter, which is more appealing for lenders.

Learn More: How Business Credit Cards Affect Personal Credit 

The bonus C: Communication

Communication is also a determining factor of whether or not you’re a good business partner. Conveying your company’s challenges and opportunities during the loan application process shows transparency and helps build trust between you and your lender.

The 5 C’s of credit and cash flow

Cash flow is the essential component that makes your company’s 5 C’s of credit shine. Capacity is all about measuring whether or not your company has enough liquidity to support a loan — making cash flow an essential part of the equation. 

Without positive cash flow, you’re going to have a tough time getting credit. The basis of good credit begins with solid financials — here’s why it pays to keep on top of your cash flow before you seek financing.

Managing cash flow helps you:

1. Demonstrate capital

As we’ve discussed earlier, capital is a major determinant for lenders when they review loan applications. You will need to provide as much information as possible about how much money your company has available, along with any other liquid assets. Cash flow management helps you keep track of your capital, which makes it easier for you to provide insights to your lender.

One thing to keep in mind is that there are lending options that don’t look at capital the same way that traditional term-loans or revolving lines of credit do. Asset-based lending, like invoice factoring and financing, let you use your outstanding invoices as collateral to access funds quickly and easily.

2. Keep debts organized

Lenders want to know how well you’ve handled debt in the past, as well as your capacity to repay new or existing loans. You can use cash flow management to track repayments, forecast future loan-related expenses, and monitor your own capacity to take on additional debt. You’ll be doing yourself a favor by staying organized. Your loan applications will also be all the more attractive as a result.

3. Create better revenue projections

Conditions are a crucial decider of creditworthiness. As such, your company’s revenue projections play a role in evaluating the risks and opportunities you might encounter in the future. The best way to anticipate future revenue is by monitoring your cash flow over time.

PayPie’s cash flow forecasting tool helps you better understand where your money is coming from, where it’s going, and what your company’s financials might look like down the road.

4. Answer questions during the application process

Loan application reviews are extensive, and borrowers need to be ready to answer questions about their business throughout the process. The best thing you can do is be prepared. Monitoring your cash flow can help answer common questions about your company’s current revenue, revenue projections, and operating finances. You’ll have answers if you monitor your cash flow on an ongoing basis, rather than piecing together financial information as questions arise.

The 5 C’s of credit may determine your company’s creditworthiness. You can set yourself up for success by keeping on top of your company’s cash flow.

The best way to begin is PayPie’s cash flow forecasting tool, which integrates seamlessly into your QuickBooks Online account (integrations with other bookkeeping platforms are coming soon).

main dashboard and ratios

Sign up, connect your business and run your free report! 

Best of all, the tool includes a proprietary risk score, which gives you further insights into your company’s attractiveness to lenders.

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels. 

How Business Credit Cards Affect Personal Credit

Business credit cards and personal credit

Keeping personal and business finances separate is a cardinal rule of owning a business. But there are instances where it’s impossible to keep the two apart (by no fault of your own). One example? Business credit cards. If you’re applying for a business credit card, chances are you’ll have to share your personal credit history to even apply.

There’s a strong link between your personal credit and your business credit — especially if you’ve just started your business. Because you don’t have an established credit history, you may have to sign a personal guarantee that makes you personally responsible for your business debts.

Business credit cards are a great resource to keep a business humming — but they’re not without risks and should be used wisely. This is why PayPie advocates monitoring cash flow to get a 360° view of your company’s incomes and expenses.

Business credit cards and personal credit

When card issuers approve credit card applications, their primary decision factor is risk. Before extending credit, they want to know if, historically, a borrower has paid back their obligations on time.

The tricky issue for new businesses is their lack of credit history. It’s hard to determine how good you are at paying off debt if your company doesn’t have a borrowing history in the first place. This forces creditors to look elsewhere to get a sense of their applicants’ creditworthiness. The first place they look? Your personal credit.

If an applicant has a personal history of paying on time, it’s likely that they’ll pay their business credit card bills on time too. In this respect, business credit cards function as an extension of your own personal credit. Until your business takes on debts of its own and builds its business credit history, your personal track record serves as a substitute.

business owner using a credit card

Business credit cards and personal liability

The connection between your personal credit and your business credit card doesn’t end at the application process. You can expect to sign a personal guarantee when you open your card as well. The personal guarantee is a promise to your creditor that you will pay for debts if your business can’t.

The idea of taking on your business’ debt can sound intimidating. After all, most entrepreneurs set up business entities like limited liability corporations (LLCs) or S-corps to separate their business liability from their personal obligations. But, business entities only offer so much protection and little of it extends to paying off your company’s credit card balance.

The CARD Act of 2009 protects personal credit card holders from several practices, such as arbitrary interest rate increases, double-cycle billing, and unfair payment allocations. But, the act doesn’t cover business credit cards. Many major business credit card providers offer their customers the same or similar protection. When you apply for a card, just make sure you know if your provider offers any protection from unfriendly practices.

How Business Financing Options Affect Credit (And Vice Versa)

Circumventing a personal guarantee (Why it’s hard)

Not every credit card requires a personal liability guarantee. There’s a chance you won’t have to sign one if your personal credit is stellar, you have a preexisting relationship with your creditor, or your business already has a solid credit history. Alternatively, you and your business partners can apply for a limited liability business credit card, but unless you’re making millions in revenue, you probably won’t get approval.

Regardless, unless you specifically go out of your way to avoid a personal guarantee on your business credit card — and have an outstanding credit history with significant revenue — you’re likely going to need to sign one.

The Best Business Credit Cards and How to Pick the Right One 

How business debt affects personal debt

Not only are you personally responsible for business credit card debts if your company can’t take care of them — your personal credit history will also be on the line if creditors don’t get paid.

Of course, bankruptcy is a last resort. If your company completes the Chapter 11 process, you can still potentially continue to run your business and settle your debts entirely through the financial veil of your company. But, if your company doesn’t qualify, can’t meet obligations, or otherwise folds before or after bankruptcy — you’re personally liable for your company’s unpaid credit card bills.

Should your business’ debt issue get to a point where you can’t pay back business purchases yourself, you may even need to file Chapter 7 bankruptcy as an individual, too.

Protecting your business and personal credit

The idea of business credit card providers having access to your personal finances is a frightening one. But, there are ways to mitigate the prospect of this happening.

Establish a strong credit history for your business if you want to create distance between your personal and business credit. The longer your track record of paying on time, the more trustworthy you’ll appear to creditors. The more trustworthy your company is, the better your interest rate will be. Creditors will also be more likely to work with you when payment issues arise, giving you more flexibility to pay back debts.

Aside from generating revenue, the other way to create space between your business and personal credit is time. The longer you’re in business, the more likely banks are to view your company’s financials as separate from your own personal history. There may not be much you can do to influence the passing of time. However, patience perseveres here.

A business credit card is only one component of your company’s suite of credit and payment tools. Keeping track of them all, while doing all you can to improve your business’ credit, can be challenging.

Our cash flow forecasting tool helps you get the big picture of how all your incomes and expenses come together — including how it influences your risk profile.

QuickBooks Online users can get started today. All you have to do is sign up.

main dashboard and ratios

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels. 

How Business Financing Options Affect Credit (And Vice Versa)

business financing options

Applying for business financing can sometimes seem like an opaque process. Yes, there’s some subjectivity involved in business financing approval — a human underwrites your loan, after all. But, for the most part, lenders use a fairly consistent set of qualifications across the board. No matter which small business financing options you’re seeking, lenders often look at one element before anything else: Your business and personal credit histories.

This means you’ll need to understand your credit history and how it affects your creditworthiness before applying. Once you’re approved, you’ll also need to know how getting that loan will affect your credit afterward.

Proactively, you can take charge of your business’ cash flow by using forecasting tools. PayPie’s forecasting tool can help you see the strengths, weaknesses, and opportunities in your cash flow. As business funding plays a role in your cash flow management, here’s what you should know about the relationship between business financing options and your credit.

Business funding begins with your credit history

Some types of business financing products are harder to qualify for than others — that’s a given. For instance, only the most qualified candidates with solid credit histories and consistently great revenue can score Small Business Administration (SBA) loans. (Despite your buzz, your kombucha startup will need to build up some real time in business before you can even consider a government-backed loan.)

Before you can even understand if you’re in the running for certain business financing products, you’ll want to review the basic requirements for business financing options you’re interested in. These requirements will vary from lender to lender. They’ll sometimes include revenue and time in business — but they’ll almost always include your credit rating.

Before you apply for business financing, lenders look at your credit history because it’s considered an objective representation of your history with debt. A credit report indicates risk: the better your report, the more likely they are to get their money back. And lenders are in the business of mitigating their risk. They tend not to lend to the riskiest borrowers with weaker credit histories.

Your Business Credit Report and Why It Matters 

Both your personal and business credit histories matter

As a business owner, your personal credit history will be the first place a lender looks to size up whether or not they believe you’re a good candidate for any sort of business financing options. But they’ll also be looking at your business’s credit history.

A personal credit score is that number you’re used to seeing usually measured out of 850 (though some other bureaus use different standards) — it’s important for applying for personal credit cards, mortgages, car loans, even when you open up an account with a new telecom provider. Factors that affect your personal credit include your credit utilization ratio, length of credit history, outstanding debt, and more. Your personal credit score will vary slightly among the three main bureaus — Equifax, Experian, and TransUnion — depending on how they weight different factors. Lenders will look at this because you own the business — so, if you’ve been historically responsible with personal debt, it’s likely you’ll do the same with your business’s money.

Then, there’s your business credit score. It’s exactly the same in that it represents how you’ve handled debt in the past for your business. The factors that go into it are similar, too, but it also includes things like the risk inherent in your industry (like tobacco manufacturing or apparel manufacturing) and your company size. This score, which is often between 0 to 100, begins building as soon as your business starts.

Why a strong credit rating is important

A strong credit history obviously hugely important for qualifying for business financing options. But, often, the stronger your credit rating, the less expensive your loan. Candidates with good credit history — and, subsequently, higher credit scores — will generally receive better repayment terms.

For example, if you apply for a $35,000 medium-term loan with a credit score of 810. You might receive a four-year monthly repayment at 8.5%. That’s $6,409.15 in interest. But maybe that same loan to a candidate with a score of 690 would have monthly repayment terms of three years at 15%. Try paying $8,678.31 instead. There are, of course, a lot of other factors that go into determining your loan terms. But credit history is a big piece.

business financing options credit report

How business financing options affect your credit rating

You got the business financing you needed — that’s huge. Take a breath, feel good. Okay, now get serious about paying it back so you don’t put your credit history in jeopardy.

We’re not out to be killjoys, certainly. You wouldn’t be flippant about letting your business credit card bills collect dust, right? You’ll need to be serious about paying back your business loan with the same steadfast approach, too. Although a business loan is a very different financing instrument than a business credit card, they’re both funding options. No matter what you’re approved for, you have to pay back your debt. That means delinquency on your business loan will negatively impact your credit history.

The Best Business Credit Cards in the United States 

How business financing options can improve your credit

Before we get into doom and gloom, let’s look on the bright side. If you’re diligent about paying your loan bills on time and in full, according to the terms your lender sets, you’ll be able to raise your score. It makes sense: You’re proving to your lender that you are, in fact, responsible with debt.

If you pay off your loan like you should, you’ll put yourself in a great position to qualify for better financing products down the line — whether that’s a better business credit card or a higher-quality loan (like that SBA loan). You could even refinance your existing loan to lower the cost of your payments now that you’ve proven you can pay back your loan bills.

How business financing options can hurt your credit

On the other side of the coin, your credit rating could be at risk if you miss those payment due dates, or you’re not able to pay at all. This is what’s being called “delinquent” or “in default” respectively. Both are very, very bad news for your creditworthiness.

How to use cash flow to choose the right business financing option

It’s absolutely crucial that you only take out a business loan that you can afford. That means one that you can pay back in terms of its total capital amount, but also one with repayments you can afford based on your business’s cash flow.

When you use your cash flow forecasting tool to understand what kind of money is going on and what’s going out, you should be able to make an informed decision as to what you’ll be able to handle on a daily, weekly, or monthly basis — whatever your terms are. That’s why it’s so important to know your cash flow.

As you can imagine, that’s also why lenders scrutinize your bank balances, balance sheets, and cash flow statements so closely. They want to make back their money.

Cash flow vs Profit — The Difference 

How three types of business financing options could affect your credit

1. Short-term loans

Term loans are what you’re thinking about when you hear “business financing” — that lump sum that gets deposited in your business bank account after approval. They come in lots of different forms. Short-term loans good solutions for working capital, specifically with bigger purchases.

The most important thing to understand about term loans is that you begin paying interest on the full amount of your term loan as soon as you receive it. Short-term loans specifically often require daily or weekly payments — which might be difficult for some entrepreneurs to keep up with.

Term loans will absolutely build your credit with consistent payment. But, daily or monthly payments can quickly become overwhelming for business with a high risk of cash flow problems. You’ll need to be sure you can afford these payments before signing on to a short-term loan.

2. Business line of credit

As an alternative to a term loan, a business line of credit is a better option for businesses with cash flow concerns. It’s set up as a kind of hybrid between a credit card cash advance and a traditional business term loan. You’ll get approved — based on your personal credit history, generally — for a certain amount of business financing. Then, you’re able to take out — or “draw” — as much or as little as you want to use at a time.

What’s different here is that interest only begins to accrue when you draw funds, and you’ll only owe interest on the portion of your total credit line that you use. Think of it like a clock starting. If you were approved for a business line of credit in January with a six-month repayment term, but you didn’t make your first draw until March, your repayment isn’t due until September.

Maybe you need a short-term business financing option, but you’re concerned about a business term loan tanking your credit history because you might not be able to afford daily or weekly payments. That’s a real concern — especially since many people use short-term financing to supplement cash flow concerns. In that case, a business line of credit could be a much better fit. Not only will you not have to worry about destroying your credit rating in the same way, but a business line of credit is actually a great credit-builder to prove your responsibility with repayment.

What to Know About Cash Flow Forecasting 

3. Invoice factoring

Invoice factoring is another essential option for cash flow crunches. With this type of business financing, you actually sell your invoices to a lender (factor) who’ll pay you a portion of your invoice, and then work directly with the vendors whose payment is outstanding to seek the remainder. You’ll get the rest, minus a fee when the balance is paid out.

This is one of the best options available for cash tied up in trade credit or overdue invoices. Because you’re selling your invoice and not taking on any debt, factoring doesn’t actually affect your credit history at all. Your activity with short-term loans, business lines of credit, and credit cards, too, all get reported to the credit bureaus. That’s not the case with invoice factoring, though. Since you provide collateral (the invoice), there’s no debt to report to the credit bureau. You actually might end up benefiting on the credit side, especially if you’re able to pay other bills on time as a result of freed up cash.

Every business financing option  affects your credit rating

If you take away nothing else it should be that your credit history is really, really important. It’s important before you apply for business financing. It’s important after you apply for business financing. But it’s also something you can control.

The bottom line is that every business financing product affects your creditworthiness and overall financial health — but it’s up to you to decide whether it’s a negative or positive effect. The simplest way is to make certain that you’re only taking on the business financing options you can afford. And that’s done by having an airtight sense of your cash flow and sense of how business lenders view your risk.

Start the process now by creating a PayPie account, and then connecting your business accounting software.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels

Invoice Factoring: A Beginner’s Guide

invoice factoring beginners guide

The best feeling in the world as a business owner is getting paid. The worst? Waiting to get paid. Whether it’s due to trade credit or delinquent customers, waiting on money is awful. That’s where invoice factoring from PayPie can help as a fast, effective way to free up cash tied up in unpaid invoices.

If you haven’t heard of invoice factoring before, it’s a well-established trillion dollar industry. (For history buffs: The earliest form of invoice factoring first appeared in the Code of Hammurabi from 1754 BCE.) For newbies and entrepreneurs who simply want to be informed — here’s what you need to know about how it works:

How invoice factoring works

Invoice factoring is a fairly simple concept: If a company has one or more unpaid invoices that due from clients, but hasn’t yet been paid to them. Invoice factoring lets businesses sell their invoices to lenders (factors) for the sum of their outstanding balances. You essentially borrow against your outstanding invoices in order to get your money faster — since the factor provides the cash instead of the customer. This creates more financial flexibility, all without a lengthy term-loan application process.

The factor holds onto the borrower’s invoices in exchange for a percentage of the total value of the invoices. The factor is then responsible for the collections process, typically by working directly with the clients who are paying for services. Once the factor is paid, the business receives the remainder of the balance — minus interest and fees.

The benefits:

  • By passing along invoices to a factor, businesses free themselves from lumpy cash flow due to piecemeal payments.
  • This further unburdens the business from being reliant accounts receivable in order to have working capital and cash flow.
  • The factor provides the money up front and handles the back-end work of collecting payment. 

Learn More: Six Reasons Businesses Use Funding 

Five ways businesses can use invoice factoring

Here are some examples of what businesses can do with the money they receive through invoice factoring:

1. Bridging cash flow gaps 

The most vexing issue with unpaid invoices is the uncertainty they create for your company’s cash flow. You know that you have money coming in, but you’re not sure when you’ll actually see it in your account. Invoice factoring helps you take the guesswork out of when you’ll get paid — making it much easier to keep your company’s cash flow steady.

By borrowing against the value of your invoices, you know exactly when you’ll have money in your account. Invoice factoring minimizes fluctuations in your company’s day-to-day finances, all while making it less of an imperative to chase individual invoices in order to keep your business running smoothly.

2. Accessing fast, short-term funding

Keeping your cash flow steady is great. But, sometimes, you need a little extra help with paying for bigger expenses as well, such as payroll or emergency repairs. Instead of panicking when you’re short on operational cash but big on unpaid invoices, you can use invoice factoring to help take care of the little (and big) things that keep your company humming.

Invoice factoring is usually a speedier process than obtaining a business loan or business line of credit. Those loans typically require collateral, extensive applications, and a lag between approval and the disbursement of funds. You can’t always wait that long if you’re short on cash to pay staff, replace broken machinery, or make an office repair.

growth opportunity

3. Using invoice factoring to access working capital

Your company’s cash flow and operational budgeting might be perfectly fine from month to month.  Better still, your clients might be super reliable about paying their invoices on time. But even if any of those factors are true for your business, there may still be moments when you can benefit from having a lump sum that’s delivered to you more quickly than your invoice terms allow.

In these cases, invoice factoring helps you move up the payment timeline. There are also no restrictions on how you use the money — since, in essence, it’s your cash in the first place. You’re free to use invoice factoring to increase the amount of liquid funds on your balance sheet and apply them how you see fit.

More Tips: 7 Ways to Boost Cash Flow 

4. Investing in growth

Another great time to pursue invoice factoring is when you’re ready to tackle a new project, initiative, or large order from an existing or new client. It’s not always easy to invest in the raw material, machinery, or inventory you need when expanding your business. But through invoice factoring, you can convert your existing accounts receivable funds into money that can be used for all of the above.

Even if you would not normally be in the market for invoice factoring, you can always call upon this resource when the unexpected (but exciting) prospect of future business or new initiatives comes around.

5. Building and preserving credit

Invoice factoring provides small business owners with an opportunity to get financing without impacting their credit rating, too. The money you get from invoice factoring a loan, since your invoices are the basis for the exchange between you and your factor. And, if you want to build your business credit, you’re free to use the money to pay off business debts. In these ways, invoice factoring helps you preserve or improve your credit.

What’s a Business Credit Report and Why Should You Care?

Three questions to ask when considering invoice factoring

If you’re considering invoice factoring, there are a few factors to consider. You’ll want to make sure you’re partnering with the right company, and on the right terms for your business. Here are a few of the big questions to consider before entering into an invoice factoring agreement:

1. What are your odds of loan approval?

It is typically easier to get approved for invoice factoring than for other kinds of loan products. With that in mind, you’ll want to consider whether or not you’re likely to get your business approved for other kinds of loans, or if your best bet is to pursue invoice factoring from the get-go.

If you’re considering working with a company, ask them which factors increase or decrease your risk profile, including years in business, previous credit history, the size of the invoices and the quality of your customers and their payment histories.

2. How will invoice factoring impact my client relationships?

Although invoice factoring is common, many factors require businesses to notify their clients about their partnership. Clients will pay invoices to the factor, rather than the business, which can sometimes require explanation and information. Not every small business owner wants to leave this component of their client relationship to a third-party, making a dialogue about invoice factoring beneficial.

3. Which invoice factoring company is right for my business?

Invoice factoring has been around for quite a while. In fact, it’s old enough to have seen a variety of industry-specific factoring companies flourish. Small businesses owners may not be familiar with invoice factoring companies, however, which means that it’s important to find one that has experience working within your field.

If you’re used to waiting 30, 60, or 90 days to get paid, but often need the money in less time than your terms allow — invoice factoring may help you create a steady cash flow, a consistent pool of operating capital, or even an additional source of funds to help take on the next big chapter in a business’ growth.

In addition to invoice factoring (coming soon), PayPie also offers insightful cash flow forecasting cash flow forecasting that includes drill-down screens for accounts receivable and credit risk insights (see below) that show small business owners how potential lenders might assess their company.

full risk profile

All you need to do is sign up for a PayPie account and connect it to your QuickBooks Online account, and you’re good to go.

PayPie only supports QBO at the moment, but integrations with other accounting applications are coming soon. 

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels.

Small Business Funding: 6 Reasons It’s Used

Small Business Funding Planning

The idea of small business funding can be — and, frankly, is — a nebulous, overwhelming concept for so many small to medium-sized enterprises (SMEs). Most business owners only look into business financing when they’re in a cash flow crunch. By then, the pressure is on to find a great deal for a loan that your company can afford when you’re in a tough financial position. You can see where this is going, right? That’s not always easy to track down.

One of the savviest moves you can make as you helm your company is learning why you might need small business funding in the first place. Although securing funds can appear to be an arduous process that only applies in emergency scenarios, you might actually be surprised to find out that business financing can be used for more than just bailouts. Knowing your options and applying them wisely can actually accelerate your business’ growth.

6 Ways Small Business Funding is Used

1. Smooth out cash flow gaps

If you work on trade credit, it’s not entirely rare to be in a situation in which you have multiple unpaid invoices out at once without one due anytime soon. (Or, perhaps, some overdue.) When you invoice on Net 30, 60, or even 120 terms, you don’t have full control over how your customers affect your cash flow.

Invoice factoring is a type of small business funding that lets you release money tied up in accounts receivable in order to regain control of your cash flow. With invoice factoring, you’ll essentially sell your invoice to a lender (factor). They’ll pay you a portion (percentage) of your invoice, handle tracking down your payment, and pay out the rest, minus fees, when they get paid in full.

While you don’t get the full amount of your invoice, in this case, it’s far better than having no liquidity at all — and missing payments on necessary overheads like utilities. Experiencing a temporary shut down is likely more expensive than paying a factoring fee.

Although when most people think of business funding, they imagine a big lump sum of cash deposited in your bank account all at once, invoice factoring is different. Actually, very different: It’s a type of asset-based financing where your invoice serves as collateral for the cash. That makes it much more accessible for the average small business owner — both in terms of time-to-cash and qualification criteria. The approval times are faster, too.

Insights: The 10 Best Businesses for Cash Flow

2. Hedge against seasonal downturns

The reality of being a seasonal business is that you don’t make steady money year round. Say you provide edible flowers to restaurants on Martha’s Vineyard. Not only are you beholden to growing seasons, but also tourist high seasons, too.

Your business might do very well during your peak months. But, even then, your revenue has to fuel both your operating expenses throughout those months and act as a kind of bridge to the next peak season. Do your cash flow forecasts say you’ll make it? (Our forecasting can help you assess your risk of missing the mark.)

If not, you can use your small business funding to help tide you over. It’s not a shameful thing to do — in fact, it’s a smart investment in your company’s future. If you do apply for business funding to supplement slower revenue periods, make sure you apply before sales get slow. Lenders will evaluate your cash flow and business bank statements, so you want to prevent the strongest financial picture possible.

3. Invest in opportunities

Nothing seems like an opportunity that’s too good to pass up — until you get your opportunity that’s too good to pass up. Instead of kicking yourself that you don’t have the available cash to seize whatever that is, consider using small business funding to help.

Size up the pros and cons of each option, then determine its potential for returns. For instance, maybe you need to finance inventory for a guaranteed high-volume purchase order to get in new retail doors. In that case, there’s a good chance the debt you take on will pay for itself.

Think of this kind of short-term small business funding, then, as an investment to accelerate growth.

According to the 2017 C2F0 Working Capital Outlook Survey, 28% of SMEs would expand operations with additional cash flow and another 9% would invest in research and development.

Small Business Funding Ball of Cash

4. Upgrade, renovate, or expand

Something is always changing around you, whether it’s your customers’ tastes and preferences, industry technology, or market shifts. The sink-or-swim nature of business means you have to evolve too. Which, of course, isn’t free.

Replacing the ovens in your bakery? Expensive! Giving your dated showroom a facelift? Very pricey! Opening an additional studio in a newly developed, high-traffic area? (Your turn.)

Some of these capital-intensive projects simply aren’t possible with the amount of capital most entrepreneurs keep liquid. These one-time costs are prime reasons entrepreneurs choose to apply for small business funding.

Tips: 7 Ways to Boost Cash Flow 

5. Access working capital

Working capital is a big, blanket term for money that can help you out in the short-term — in other words, everyday expenses or growth projects that you don’t consider investments or longer-term expenses.

Maybe you know you need to hire a marketing coordinator in the next two months. However, the numbers on your balance sheet say that you’re not going to have a full-time salary worth of cash to offer her until eight months down the line. Then a working capital loan can help you with growth expenses (including her computer, and some swag to make sure she feels like part of the team).

6. Address the unexpected

And, yes: Small business funding is great in an emergency. You know that nightmare you had where you thought your store flooded, but it was just the sound of toilet running? Well, should that nightmare one day come true, you can use short-term small business funding options to help clean up the resulting (financial) mess.

That said, it’s always a thousand times more ideal to have cash on hand before you need it. The last thing you want to be dealing with in a business-threatening emergency is tracking down business financing, too. More on that in a moment.

Read More: Short-Term vs Long-Term Business Financing

Two things to remember about small business funding

1. If possible, apply before you need capital

You can’t always see the need for money coming, especially if you’re using it to fix a problem. As we’ve gone through, a good number of the reasons you’d be looking into small business funding don’t have anything to do with crisis management at all.

To find the best business funding for your company’s needs — the right amount, the right product, and at the best rate — start your search well before you need it. Begin during your peak season if you’re a seasonal operation. Apply before you know the cost of your raw materials will rise. Or, you spot indicators that your industry might come up against some hard times.

Maybe even consider having a business line of credit in your back pocket to use when you need it. Since you don’t pay interest on funds until you draw against them, it’s a great tool in those situations that you can’t predict. It can be helpful for working capital, too.

2. Have a good sense of your cash flow

Most importantly, applying for small business funding all comes back to having a good sense of your cash flow. If you don’t manage your cash flow effectively and forecast your cash flow properly, you can’t know what you’ll be able to pay for now or down the line.

Start tracking your cash flow today. All you have to do is sign up and connect your accounting software. The more you know about your cash, the better equipped you’ll be for growth and overcoming the unexpected. Like they say, follow the money.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon. 

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels.

Business Line of Credit: The Basics

When you hear “business financing” what comes to mind? We’re not psychic, but we’d be willing to bet that the first thing you thought of was a traditional term loan. That makes sense as they’re a commonly used option.

However, you should also know about a business line of credit and how it’s used to manage cash flow. A versatile way for small to medium-sized enterprises (SMEs) to get the working capital they need — its use-what-you-need-as-you-need-it structure is what makes it distinct.

How a business line of credit works

Think of a business line of credit (revolving line of credit) as a hybrid between a loan and a credit card cash advance. To begin, you work with a business lender to get approval for a fixed sum of capital.

The next part is the biggest divergence from a traditional term loan:

  • Although you can use up to the full amount for which you’re approved, you don’t have to.
  • You can make what’s called a “draw” —  borrowing an amount you choose.
  • You only pay interest on the amount you take from the full line of credit.
  • Once you’ve paid back any amounts drawn, they’re available again for future use.
  • When you need capital, you simply draw against your approved credit line.  Draw up to your limit or just a specific amount — it’s up to you.

Read More: Separating Business and Personal Finances 

How to apply for a business line of credit

Qualifying for a business line of credit isn’t as difficult as many other business funding products. Generally, these applications require less paperwork and financial history than term loans.

Many of the lenders who offer other types of business financing — both banks and online lenders — also offer business line of credit products. (Banks are more selective than online lenders, as expected.)

Requirements vary from lender to lender:

  • Some lenders care more about your revenue and personal credit score.
  • Others, about your time in business.
  • In general, a combination of these three factors is used to evaluate your risk as a borrower and determine your eligibility and terms.

Prior to applying for a business line of credit — or any business funding — you’ll need to know a few things solidly:

  • First, your personal credit score, which will play a big part in the approval process.
  • Next, basic business financials: At a minimum, your revenue and your business bank account balance.
  • Most importantly — you need to have a thorough sense of the cash going into your business and the cash going out.

Cash flow is among the best indicators of a business’s financial health, so lenders will be looking. Our cash flow forecasting is a powerful tool to get your cash flow picture — and it includes a risk score based on your current financial data.

How a business line of credit is set up

Hearing like a business credit card might make you think that these financing tools aren’t powerful.

But, business lines of credit can go into the millions of dollars — and major corporations have different types of business credit lines at the ready. For instance, Facebook established an $8 billion line of credit before it went public in 2012. (Sure, that’s not quite the same stratosphere — but you see what we’re getting at.)

As an SME, you’ll work with a lender to get approved for an amount that makes sense for your business.

  • Many lenders establish a line of credit for as little as $5,000.
  • Because you don’t receive any money up front, many business lines of credit are unsecured.
  • For larger amounts (sometimes upwards of $100,000, though this is dependent on your lender), lenders will occasionally issue a blanket lien to collateralize your loan.

Where to get a business line of credit

To get a business line of credit, you can either:

  • Go through a bank that will have stricter financial requirements but better rates. It also might take slightly longer than an online lender but will still be faster than a term loan.
  • Use an online lender that will be more lenient requirements but charge higher interest. If you’re qualified, you could see approval in fewer than 24 hours — which means access to funds in just a few days.

An example of how a business line of credit can be used:

Maybe you own a boutique fitness studio, and the carpet in one corner of your main exercise room is worn away. Replacing the carpet overnight will cost $1,400.

With a line of credit of, you can draw:

  • $1,400 for the full cost.
  • $1,000 and take the other $400 from the cash you have on hand.
  • $1,500 just in case the job cost goes over.

Basically, the draw is at your discretion. Whichever you decide, you’ll only pay interest on the amount you draw.  The unused amount on your line of credit isn’t subject to any interest and is still accessible at any time.

Your lender will assess repayment terms when you’re approved for your business line of credit. That includes an interest rate as well as a period in which your draw must be repaid, plus that interest. Generally, that time frame falls between six to 12 months (again, it’s specific to your lender).

Learn More: Basic Cash Flow Concepts and Terms

A business line of credit is revolving credit

Most business lines of credit are what’s called “revolving.” This means that once you’ve repaid the full amount you’ve borrowed, they re-up. You’ll have access to the full amount again. This makes them a fantastic tool to keep in your back pocket, so to speak.

Business Line of Credit Secondary Image

5 advantages of a business line of credit

1. It works with other business financing options

Because many business lines of credit are unsecured, SMEs are able to use them in tandem with other secured loans.

With other kinds of business financing tools, taking out multiple collateralized loans — what’s called “stacking loans” — is not only bad for your credit as a borrower, it can also violate the terms of your initial secured loan. That means you automatically default.

A business line of credit, however, is designed to work with other types of business funding products. By definition, it’s an extremely flexible financing product for working capital.

It works well alongside a term loan you’ve taken out to build an additional location or to supplement additional unforeseen expenses. Or, if you use invoice factoring to release money tied up in trade credit, a business line of credit is the logical partner to accomplish whatever you need to during cash flow crunches.

2. It has interest rates you can work with

No one likes paying interest, of course. But, it’s much better to pay a little interest rather than a lot.

We mean that in two ways: First, as a borrower, you won’t pay interest on anything more than you draw. As you monitor your cash flow with cash flow forecasting, you can make informed decisions about how much interest you’ll be able to handle. And then, of course, only draw funds based on what you’re certain you can repay. (Assuming you’re using your money for an investment, not an emergency, naturally.) This calculated approach isn’t only great for building credit, but it’s also the mark of a financially responsible business owner.

Secondly, even though interest rates will vary depending on your lender and creditworthiness, generally, your business line of credit annual percentage rate (APR) will be less than the one on your business credit card. Having access to a business line of credit will save you money in the long run so you’ll never have to carry an expensive credit card balance.

3. It’s a credit-building tool

One thing SMEs know better than anything: Credit rules everything around you. Or, at least, enough that you have to make certain your credit report is as good as possible — and, if it isn’t, that you’re constantly trying to improve it.

A business line of credit can contribute substantially to building your credit. By borrowing against your credit line and paying back the amount in full and on time — the same way you would a credit card bill — you help prove responsibility with debt. That incrementally raises your credit score (risk profile) and will help you open doors for your business.

Cash Flow 101: The Difference Between Cash Flow and Profit 

4. Once it’s approved, the cash is always available

Once you’re approved for your line of credit, you don’t even technically have to use it. Sounds strange to say, but it’s true. It’s unlike other types of business financing in which once you’re approved, your clock starts ticking on your repayment and your interest starts collecting on your entire sum.

Many business owners have a business line of credit simply to know they have it. That way, they can pursue whatever they need and not have to worry about their cash flow situation. In a way, it’s similar to invoice factoring — a resource you know you always have at your disposal, but don’t need to tap into unless you choose to. And, if you do so strategically, can be a savvy move.

5. It’s useful for growth or emergencies (or both) 

A business line of credit is arguably the most flexible financing product on the market. Since it’s a working capital loan, you’re not tied to one use case for the money. Essentially, if you have an expense, a business line of credit can likely address it.

That means it’s as useful for financing investment and growth opportunities as it is for addressing disasters. For instance, if you run a tutoring center, you might draw from your credit line to hire new staff to add services for STEM programs, including computer science and robotics tools and applications. But, you can just as easily use the money to buy a new window ASAP when a robot war gets out of and casualties ensue.  

A few closing thoughts…

As ready as you might be to spring into action and apply for a line of credit, make sure you’ve done due diligence… on yourself. You know lenders will be scrutinizing every last decimal place of your financials, right? Then you better be doing the same.

Open up your own tool chest and use the best possible equipment you have to get a sense of what kind of assets you have — and what kind of borrowing risk you’ll pose. As we mentioned, cash flow is the best place to start so you can understand how likely you’ll be to pay off your loan balance.

See how the money is flowing in and out of your business and how potential lenders view your business in terms of risk. Getting started is easy: Simply create a PayPie account then connect your business accounting software.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.

This article is informational only. It does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.

Images via Pexels.