3 Tips to Improve Your Credit Score with Invoice Financing

invoice financing

Your business credit score is so much more than just a number. It can greatly impact your business reputation and how your customers, competitors, investors, and potential lenders view your business. Obviously, the higher your credit score, the better it is for your business. Most business owners in need of additional working capital often forego applying for business loans because it might affect their credit score. Fortunately, invoice financing allows you to access additional working capital and improve your credit score at the same time.

Related: 5 Common Cash Flow Problems That Invoice Factoring Can Solve

Why is Credit Score Important?

At some point in your business venture, you’ll eventually need an additional injection of cash to add to your working capital. The only way to do that is if you apply for financing at different financial institutions. However, lending companies usually check your credit background to prove your creditworthiness. Part of your credit background is your credit score.

Essentially, your credit score will determine the terms ad what types of loans are best for you. For traditional bank loans, you may need to have a credit score of at least 600 or above. But, again, the score will still be dependent on the bank’s policies. Small start-up businesses, because of their lack of financial background, may have difficulty qualifying for bank loans.

The higher your credit score is, the more loans you’ll qualify for. Aside from that, you’ll also get to enjoy better loan terms with a higher credit score. The more creditworthy you are, the better your chances of loan approval will be.

However, if you have a low credit score at the moment, it’s important to repair it as soon as you can. One proven way to do this is to apply for invoice financing.

How to Improve Your Credit Score with Invoice Financing

Invoice financing allows you to leverage your accounts receivables in exchange for upfront cash. Besides additional access to cash, it can also help improve your credit score. Here are three simple ways you can increase your credit score by using invoice financing:

1. You get to pay your bills earlier or on time.

One of the biggest factors that can affect your credit score is the timeliness of your payments to your vendors and creditors. Small to medium-sized businesses often wait to generate more profit or revenue before they settle their bills. However, this practice can lead to delinquency – and eventually a decrease in credit score.

With invoice financing, you can use your invoices to access the additional working capital. You can use the funds to pay your bills earlier (or on time) and increase your credit score. When your credit score increases, it’s easier for you to qualify for loans and favorable credit terms with suppliers and vendors. Most importantly, paying your bills on time will also help you maintain good relationships with suppliers and lenders.

2. Access additional working capital without affecting your credit score.

Did you know that applying for a business loan could negatively impact your score even if you haven’t been approved? The inquiry itself can take a hit on your credit score. On the contrary, invoice financing is not a loan; it’s more of a business transaction. Invoice financing allows companies to sell their outstanding invoices to factoring companies in exchange for immediate funding.

Related: Stop Losing Money! Focus on 4 Ways to Grow Your Working Capital

Invoice financing is also great for business owners with poor credit scores. Factoring companies are more concerned with your customers’ scores rather than your credit rating. Some factoring companies may look at your credit score, but it won’t matter as much. They will also check your customer’s creditworthiness first before deciding to work with you.

Factoring your invoices is a great way to generate additional working capital without having to sacrifice your credit score. And since invoice financing improves your credit scores, you’ll be able to easily qualify for other forms of financing.

3. Boost your business’ credibility among customers and potential lenders.

A high credit score boosts your business’ credibility. When doing business with suppliers, lenders, or even customers, they will likely check your credit score to see how efficient you are at running your business. If you want to gain their trust, a high credit rating definitely helps.

In turn, a low credit score will negatively affect your business. Investors, suppliers, and other vendors are more likely to turn you away and avoid business with you because of the risk involved.  Invoice financing provides you with the working capital you need to run your business while at the same time you build your credit rating. The better your credit score is, the more business opportunities will be available for you. This, in turn, ensures the success of your growing business.

Ezra Cabrera
Ezra Neiel Cabrera has a bachelor’s degree in Business Administration with a major in Entrepreneurial Marketing. Over the last 3 years, she has been writing business-centric articles to help small business owners grow and expand. Ezra mainly writes for SMB Compass, but you can find some of her work in All Business, Small Biz Daily, LaunchHouse, Marketing2Business, and Clutch, among others. When she’s not writing, you’ll find her in bed eating cookies and binge-watching Netflix.

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