Credit scores are extremely important when you operate a business. Not only will it affect your chances of being approved for a bank loan, but it can also affect the reputation of your business.

Basically, the higher your score is, the more financially responsible you are in the eyes of other companies. Because of that, entrepreneurs usually go for invoice financing for small businesses to improve their business credit score.

Invoice financing is an alternative funding option where business owners are given access to cash by selling their outstanding invoices. Since it’s technically not a loan, it’s the most convenient way to boost cash flow without hurting your credit score. When you use invoice factoring, you can build your credibility with your vendors and sign more contracts with customers.

How Credit Scores Work

Invoice financing has been known to be a good way to boost credit scores. Credit bureaus have access to your financial reports, including your business financials, liens, bills, and collection history. Using that information, they then calculate your credit score.

One of the biggest factors that affect credit score is the ability to make timely payments. When entrepreneurs default on payments or pay their dues beyond the given deadline, it reflects negatively on their credit scores.

Unlike your personal and business credit report, anyone can look at your credit score. If you applied for a loan from banks or alternative lending companies, the first thing they look at is your credit score.

All they have to do is to call the credit bureau and ask for your credit score information. Since it reflects on how financially responsible you are, it’s important to maintain it in a good range. In essence, the higher your credit score is, the better your chances are that you will qualify for a loan. Aside from loans, a good credit score will also help you gain more investors and improve your supplier relationship.

How Invoice Financing Boost Your Credit Score

In invoice financing, you will be selling your accounts receivables to invoice financing companies. This gives you access to cash you can use in your business operations. Because it’s a sales transaction and not a loan, it doesn’t affect your credit score.

Here are other ways in which invoice financing helps improve your business credit score:

1.   Improves the Credibility of Your Business

One of the main concerns of suppliers and lenders when it comes to business is the company’s credibility. A low credit score will mean bad news for your company. For one, you won’t be able to sign contracts with potential investors. Secondly, there a big chance that your loan application will be rejected. On the other hand, high credit scores can lead to better opportunities for your business.

One way of building good credibility for your business is by paying your debts in full and on time. If you have outstanding and unpaid bank loans, letting them pile up can negatively affect your credit score. But if you take advantage of invoice financing, you’ll be able to maintain an adequate level of cash flow in your business.

This means you can pay your suppliers and loan balances on time. The lower your debt is, the better your credit score will be.

2.   It Allows You to Make Timely Payments

If your business is currently tight on cash, chances are, you may find it difficult to meet your monthly payments. This doesn’t only ruin your relationship with your suppliers, but it can also ruin your credit score, too.

Making timely payments is important in building and maintaining a good credit score. With invoice financing, you won’t have to wait for your customers to pay you so you can pay your suppliers. This type of financial transaction allows you to have access to cash when you need it most. With the financing you obtain, you get to pay your bills earlier or on time which increases your credit score.

3.   Invoice Financing Doesn’t Reflect Your Credit Report

Among the biggest advantages of invoice financing is that applying for this loan won’t affect your credit report. Since it’s not considered a loan, there’s no need to report it to the credit bureaus. Bank loans, on the other hand, are reported, and even inquiring for one may affect your credit rating.

When it’s all said and done, invoice financing is a great option that can give you access to working capital for your business.

Since invoice financing companies rarely look at the credit scores of their clients, it’s a great way to inject cash into your business without having to worry about hurting your credit score. Once you have established steady cash flow, you can then focus on improving your credit score.

Invoice Financing for Small Businesses

Businesses, no matter the size, need to have steady cash flow in order to survive. With a bad credit rating, it can be challenging for you to qualify for a traditional bank loan as well as other types of financing.

However, if you apply for invoice financing for small businesses, you can get access to cash easily and work towards improving your business’ credit score. Remember, the higher your business’ rating score is, the better it is for your company.