BizOp Blogs

Few things in business are more stressful than not being able to pay your bills. Let’s be clear, even if you’re profitable, you can be in financial trouble due to poor money management. My first client as a management consultant was a floral company that was profitable. Nevertheless, the company had terrible credit and often couldn’t pay bills. Eventually the partners threw in the towel.

On the other hand, you can fail to make a profit — especially if yours is a growing business — and still have good credit, excellent relations with vendors and meet your financial obligations. It’s all about how you manage your money, not just how much money you have.

So let’s spring-clean your financial systems. A few simple steps and you’ll be on your way to an excellent credit rating, a great relationship with a bank, and a good night’s sleep:

•Pay bills on time every month. Notice I did not say, “Pay your bills in full every month.” I know that’s not necessarily realistic. I juggled credit card payments for many years when I started my business. But every month, every creditor got paid at least the minimum amount — on time. To make sure this happens, set up systems such as automatic bill payments, particularly for key accounts.

•Send out your invoices on time every month. The last thing on many entrepreneurs’ “To Do” list is to send out bills to clients or customers. But when you bill clients late, it encourages them to pay you late. Improve your cash flow by sending out your invoices immediately when someone incurs a debt, and certainly no less frequently than monthly.

•Take your banker to lunch. Yes, I know, the banker should be taking you to lunch — let him pick up the check. It’s important to have a good relationship with a business banker who can learn about your industry and business and understand your ups and downs. Don’t have a banker? Time to get one. Establish a line of credit to access money if times get tough or opportunities arise.

•Get a free credit report. Your credit history is crucial. Most small businesses — and all new businesses — get credit based on the owner’s credit-worthiness. Lenders check credit scores whether you’re applying for a line of credit, loan, credit card, mortgage, equipment loan, even a lease.

You’re entitled to one free credit report per year from each of the three major credit-reporting agencies. But there’s only one place to get free reports, regardless of all the commercials you hear — www.AnnualCreditReport.com. At least once a year, check your credit reports so you can clear up any inaccuracies and keep your credit clean.

•Go after overdue accounts, especially big ones. If you’ve provided goods or services, you deserve to be paid. You can’t afford to be in the lending business. Every month, spend time collecting any overdue bills.

•Limit the amount of credit you give to large corporations. Recent news reports indicate that there’s likely to be a rash of big business bankruptcies. Having gone through a major partner’s bankruptcy last year, I know how incredibly disrupting — potentially disastrous — a big company’s bankruptcy can be. Never allow yourself to be in a position where a big corporation’s debt to you can put you under.