Business owners often have two types of credit riding on the company’s success: personal credit scores and business credit histories. Leveraging your personal credit on starting your business is typical; your company does not have a credit profile yet, but struggling to pay business bills on time should not hinder your ability to refinance your mortgage or buy a new car. With invoice factoring or accounts receivable financing, you can make reliable payments on time to build your business credit profile and repair your personal credit history.
About Business and Personal Credit Scores
Your credit profile, business or personal, depends mainly on successfully repaying debt on time and not using too much of your credit at once. For instance, if your credit card has a limit of three thousand dollars, you do not spend more than one thousand dollars monthly. If you pay the bill in full and on time, your profile will show more favorably than if you have a limit of three thousand dollars, are constantly at the limit and skip one in four payments. If your business has less than three years of credit history, you are unlikely to have a robust profile and may need to leverage personal credit to finance large purchases.
Working With a Factor
Factoring, or A/R financing, involves working with a third-party lender, called a Factor, and securing an advance with your invoices as collateral. This process means that you will leverage future payments for work already done to get cash in time for your monthly bills. The fee for this financing type is generally low, and you can receive a large percentage of the invoice value as an advance. The remaining value is held as a reserve, and part of that reserve will be the financing fee.
Boosting Your Credit Profiles
You can use A/R financing to boost your credit profiles by paying your bills on time, increasing your capital for better cash flow, or saving for large purchases. This funding can boost your personal credit score because any loans you have taken out for your company will be repaid promptly, and it can increase your business credit history by showing a steady repayment of debt.
Factoring is an excellent way to get the funding you need in the short term to take advantage of time-sensitive deals, purchase the supplies you need for future projects and repay the business debt on time. This practice can boost your credit profile and help you qualify for everything from a business line of credit to a mortgage loan.