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Everflowing Chalice - How to Make It Through When Your Business Credit Runs Dry
In business, like in life, there are no guarantees. The economic climate is dependent on a myriad of factors, some of which are stable and others that are volatile. So when the going gets tough, businesses need solid credit upon which to operate when cash flow is minimal.
Large companies generally have bigger pools of liquid assets to draw upon in a crisis. At the same time, small businesses are likely to run out of capital far more rapidly in times of economic turmoil. Therefore, it is vitally important to establish and maintain good business credit, as it can act as a life-preserver when you need it most.
There are helpful practices to keep your business afloat when credit is scarce, many of which involve protecting your credit from long-term damage. This article will discuss a few ways business owners can cut back on expenditure and protect their credit.
Table of Contents
Cut Back on Supply Costs
While maintaining good relationships with your suppliers is important, you must look out for your business interests first.
It never hurts to explore your options, as prices fluctuate frequently, and you never know when you might find a supplier who can offer you more competitive pricing. Depending on what you’re ordering, bigger bulk suppliers can often provide far better deals. This might save you just enough to keep yourself above the breadline until the hard times blow over.
Communicate Transparently with Creditors and Suppliers
Your first instinct during a credit crunch might be to keep up appearances. However, open communication with suppliers and creditors can often result in an easement of payment terms that takes the immediate pressure off.
Your suppliers especially will likely be affected just as badly as you by whatever financial crisis is bringing you down. You may be able to reach mutually agreeable terms that benefit both of you in the long run.
A successful business relationship depends on parties that are willing to negotiate and be flexible under difficult circumstances. Most importantly, if you are granted alternative payment terms, be sure to fulfill them. Flexibility is important, but there is only so much leeway any business can offer.
Reduce Spending on Salaries
No business owner wants to consider lay-offs or salary cuts as an option. But sometimes, individual sacrifices are needed for the good of the whole entity. Speak to your staff openly, let them know what the state of affairs looks like, listen to their concerns and questions.
Some employees may be more willing to take a temporary reduction in salary until profits improve again. Of course, it will never be an easy or comfortable process, but the road of every successful business owner is paved with tough decisions.
When confronted with difficult choices, all you can do is handle them with as much integrity and fairness as possible.
Favor Employee Reimbursement Policies Over Employee Credit Cards
There are several advantages to handing out employee credit cards linked to your business account—any spending on these cards can bring you benefits, like points or cash back. However, as the owner of the account, you are ultimately liable for any spending they do.
Therefore, if you make a habit of distributing company credit cards, entrust them only to those whom you know to be loyal and trustworthy individuals. If a reckless or disgruntled employee decides to go on a spending spree, you’ll face the consequences.
If your instincts tell you to keep tighter control, rather set up a reimbursement policy. This allows employees to submit claims for expenses that are business-related.
Stay As Consistent as Possible with Payments
Making it through a financial crisis is not only about keeping your business afloat in the short term—but there will also be long-term consequences for your credit score if you behave irresponsibly.
Even if your resources are low, regularly paying what you can to your creditors will demonstrate your commitment to honoring your debts. This is far more preferable to missing payments entirely, which will have a seriously damaging effect on your credit score.
Businesses with good practices that stay consistent and level-headed during a crisis generally recover much faster than those who panic and hoard their resources because the former will have protected their credit.
Act Early When You See Hard Times Coming
As with most crisis management, early action can prevent a significant portion of the potential fallout.
Making contact with creditors early to renegotiate payment plans or defer payments demonstrates foresight and responsibility. It’s also far more likely to work than waiting until the last minute to renegotiate terms. Especially in times of crisis, many creditors have policies in place to help debtors stay afloat. Communicate early, and you may spare your business and yourself a lot of stress.
Be Extra Vigilant About Fraud
During global economic turmoil, people get desperate, and instances of fraud increase. It’s easy to get distracted and overwhelmed during these times. But it is during the worst financial crises that vigilance is most essential.
Keep your eyes peeled for fraudulent charges and any transactions that look suspect. Utilize accounting software that you can access with ease, and appoint trustworthy, responsible employees to oversee the books. Then, at the first sign of anything untoward, take immediate action. The last thing you want to do under financial duress is losing money to scammers.
Prioritize Payments That Are Past Due
Overdue payments to suppliers are like anchors for your business credit score. The longer these get left unattended, the worse off you will be in short and the long term. Your overall payment plan should prioritize clearing overdue bills before other expenses.
In some cases, clearing payments that are past due can actually increase your business credit score. Negative records such as these on your company’s finances are never a good thing. Making an effort to clear them can prevent further damage or even reverse previous damage.
Stay Ahead At All Costs
The trick to surviving a tough spot is to keep your business in the clear with creditors and suppliers. Ensure that you never miss payments or that you negotiate new payment terms in good time, and always be honest and transparent in your financial dealings. You’ll build trust with creditors that will see you through the rocky patches and out on the other side.