Understanding Business Credit.
- How much to lend you
- How much credit to extend to you
- What interest rate to charge you
- What your insurance premium should be
What is business credit?
- to sell to you
- to lend you money
- you are viable as a partner
- to lease the equipment you need to grow your business
- to increase your line of credit
- to help you carry more inventory at competitive prices
- to give you favorable financing rates and terms
- you stack up favorably against other companies competing in your market space
Business credit includes a variety of data points about your business, such as the date it started, the skills and experience of your top leaders, number of employees and annual sales. This type of information is listed in your business credit profile, along with scores and ratings that are derived from your business's past behavior to predict its future behavior. For example, your ability and willingness to pay your bills on time in the past is factored into your ability and likelihood of paying your bills in the future.
Why is business credit important to my business?
It's not just about getting access to financing; business credit has increasingly become the primary vehicle for setting terms on business loans, determining insurance premiums, even setting lease payments. Good business credit can earn you lower rates, strengthening your cash flow.
What are the 4 C's that companies look for?
Character includes factors such as: size, location, number of years in business, business structure, number of employees, history of principals, appetite for sharing information about itself, media coverage, liens, judgments or pending law suits, stock performance, and comments from references.
Capacity assesses the ability of the business to pay its bills, i.e., its cash flow. It also includes the structure of the company's debt-whether secured or unsecured-and the existence of an unused lines of credit. Any defaults must also be identified.
Capital assesses whether a company has the financial resources (obtained from financial records) to repay their creditors. In general, this portion of the credit report is the one most closely reviewed by the credit analyst. Heavy weighting is given to such balance sheet items as working capital, net worth and cash flow.
Conditions consider the external factors surrounding the business under consideration - influences such as market fluctuations, industry growth rate, political/ legislative factors, and currency rates.
A credit manager or loan officer will answer these questions by locating and reviewing:
- requests for credit information
- customer supplied information
- bank information
- trade information
These factors are also taken into consideration by other service providers, such as insurance companies to set premiums. More than ever, companies are using automated decision process, which means they input scores and ratings that summarize the 4 Cs into a financial model to determine the risk of doing business with you.
Can't I just use my personal credit?
You may seem overextended. Because businesses require more cash to operate than consumers do, your personal credit will not be portrayed accurately if you are using it to run your business.
To prevent people from becoming overextended, consumer credit keeps track of how many credit or loan applications you make, most of which count against your consumer credit score. On the other hand, business credit does not count numerous applications for financing against you, since businesses usually seek financing on a regular basis as a way to run and grow the business.
Unless you are using the right credit information for the right purpose, you may be putting yourself into a situation where you will be unable to get financing - for your business or yourself - when you need it.
What's myth vs. reality?
I don't deal with big banks or suppliers. I'm a small business, and I prefer to deal with other small businesses. They don't care what's in my business credit profile.
Just because you may deal with a small lender doesn't mean there isn't a big bank behind the credit the small lender extends to you. From large corporations to the family grocer, business deals decided on a trusted smile and a handshake are few and far between. After you submit your application to a small lender, behind the scenes your credit factors may be assigned numerical scores that allow your application to be processed automatically, without the direct involvement of your credit/bank manager.
Given the relative size of small business loans, many financial institutions that process large numbers of applications typically use automated decision-making processes. Some of the most popular decision-engines in use today use cut-off scores to accept or decline the lion's share of applications, relying on manual evaluation only in those cases that are inconclusive. Therefore, even though your neighborhood bank officer thinks you are creditworthy, he may be unable to decide whether, and on what terms to extend you credit.
This is true not just for lending, but also for insurance, leases, and similar financial arrangements.
I don't need to monitor changes in my business credit profile, things don't change that often.
Every business decision you make and every transaction you undertake can impact what information your suppliers, service providers, customers, and business partners see about your business. It could be major transactions like paying vendors or making lease or mortgage payments, but it could also be seemingly smaller transactions like equipment leasing, advertising, shipping packages or underwriting insurance. Every business transaction you make affects what the business world sees about your business. All these changes can affect the terms you get from your creditors or your bank; they can affect the prices you pay for insurance, all having an impact on the lifeblood of your business, cash flow and your reputation. In today's world it is critical to keep on top of your record, it's a resume on your business and it impacts your credit score, your attractiveness to vendors / service providers and your brand image.
I'm too small and new; I don't really need to monitor my own file.
Being small and new is all the more reason to monitor your profile. As you're establishing relationship with your suppliers, service providers, banks and insurance companies, putting your best foot forward is important. As you're establishing your business, third party providers will be supplying WVB FIS Co., Ltd. with information on your business:
Business registration information will come from public records indicating ownership and the legal business name.
Demographic information (business name, address, phone number, line of business) will be provided by telephone companies.
The Post Office will confirm the business mailing address.
Business Directories will supply information based on advertising you may have created.
Suppliers and service providers provide experiences about how you pay your bills, loans, leases, etc.
With all this information somewhere available and obtainable, it's critical that you keep on top of your profile and credit score to help ensure you keep your reputation solid as you forge the relationships and partnerships that will enable your business to grow profitably.
My business credit profile doesn't affect my cash flow.
Keeping on top of your business profile enables you to see how your business partners see you. The terms, credit limits and rates you receive from vendors, service providers, banks and insurance companies greatly affect your cash flow. By monitoring your profile and maintaining a strong credit score you can get the most favorable terms and rates that enable you to save money and improve your cash flow.
We are in Vietnam, not in Europe or USA. It will be a long time before the system will change and impact my business. I know my bank manager and he knows who I am.
The Vietnamese landscape is changing fast; the country is developing at growing speed and will be part of the WTO system. The local Vietnamese banks are taking the lead to adopt international best practices. International banks will compete for your business and sometimes the terms might be better than those given by your local bank. But for this they all will require your business credit profile. Your local branch manager's role will evolve and some of his decision making process will be changed. If you want to export or import it will be also crucial for you to adopt international best practices. Both suppliers and customers will want to make sure you are a reliable business partner, the same as you will want to know who he is. If the information on your business is not available he might just give his order to your competitor.
What's a business credit profile?
Like a personal resume you use to obtain employment, it's important that the information in your profile is accurate, complete and timely. No one knows your business better than you. You might have a thriving and profitable business, but when doing business with others, often what matters more is what is documented in the credit report they receive on you. Most companies want a complete and unbiased view of who you are (and how risky it might be to work with you). The business credit scores and reports give companies that want to do business with you a fast, objective measurement of your credit risk.
You should think about your business credit profile in terms of:
What is in your credit profile? What is it telling other companies about you?
How do your current business credit scores affect the interest you pay on your existing loans? Did you get the best terms? Have your scores improved enough to consider refinancing, or extending your credit lines? Do new suppliers extend you favorable credit terms or ask you to pay Cash on Delivery (COD)? Are your competitors getting better terms for the same items? Have you lost a deal because your competitor had better credit?
If your answer to any of the above questions is 'I don't know', your business credit profile may not be working to your advantage - it may actually be costing you money.
What's in my business credit profile?
Payment and banking data from company suppliers
Suits, liens and judgments, business registrations, incorporations and bankruptcy filings from state and county courthouses
Corporate financial reports
Contracts, grants, loans, and debarments from the federal government
News and media
Yellow Pages and other print directories
And, in the case of your WVB FIS Co., Ltd. business credit profile, direct investigations and interviews with company principals (i.e. self-reported data) and other companies that you work with
enhance the accuracy, timeless, consistency and completeness of the
information that goes into your file, WVB FIS Co., Ltd. puts every data
point through a quality process, that make sure that your profile is as
correct and comprehensive as we can make it.
WVB FIS Co., Ltd. has created a proprietary set of key ratings and scores that use information gathered from these sources to present an unbiased view of creditworthiness.
WVB FIS Co., Ltd. uses statistical models to develop a company's scores and ratings. The most significant contributing factor to that rating is the promptness with which you pay your bills. Mathematical methodology creates a score that shows, on average, how many days beyond terms your company pays and whether you pay within terms. This information is factored into almost every score or rating that WVB FIS Co., Ltd. provides. The more prompt the payment history, the better your business credit scores and ratings will be.
How can I avoid mistakes and omissions?
Public companies typically have an easy time communicating changes to the business community; most have teams dedicated to that purpose and these businesses are obligated to report changes to the public. However, for most of the small businesses the onus is on the business owner to ensure some changes (e.g. new leadership) are self-reported in a timely manner. It's essential that your business credit profile changes with your business; your business credibility can be enhanced when the information on file is correct and up-to-date.
Just as important as accuracy and timeliness is the completeness of your profile. When there is little or no information in your WVB FIS Co., Ltd. business credit profile, this can suggest that your company may be a risky proposition for potential creditors. Incomplete information can be as harmful as poor credit activity - in risk analysis, unknown quantities are considered risky. For these reasons, it is essential that you establish your business credit profile, populate it with as much information about your business as you can, and ensure that you update and review it regularly.
Managing your business credit profile is an ongoing responsibility, and can be accomplished by:
Monitoring the information that is contained in your credit report for changes;
Supplying appropriate information about your business to WVB FIS Co., Ltd.; and
Getting your key vendors to report your payment history with them
By managing your business credit profile, you will not only avoid mistakes and omissions, but you can be confident that your business is always being evaluated in the best possible light.
How can I improve my business credit profile?
In general, you can develop a strong business credit profile by:
Paying on time. The payment experiences other companies have with you have the most impact data in your business credit profile. For this reason, you should ensure that you pay within the terms set forth by your suppliers. This is the most direct way to drive a positive credit rating.
Ensuring all relevant trade experiences are represented. Are you paying large sums on a timely basis to key suppliers and lenders that aren't being reflected in your profile? If so, you are missing out on a key opportunity to get the credit you deserve for paying your bills on time and for conducting a larger volume of business. You should check your profile twice a year, to make sure that all the vendor payment relationships are captured.
Keeping your personal finances in good order. If you are the owner of an emerging business, until your company develops a robust credit profile of its own, your consumer credit profile also may be reviewed by prospective creditors. How well you manage your personal finances can impact your company's creditworthiness. Keep in mind, though, that your business and personal ratings are separate and distinct. One is not used to directly impact the other.
Keeping your business credit profile in good order. At WVB FIS Co., Ltd., we strive for accuracy, timeliness, completeness and consistency of data. If you see accounts that aren't yours, mistakes your bank made or false negative activity you've already addressed, you should address these inaccuracies in one of two ways: by signing up with WVB FIS Co., Ltd. Update, our online tool that allows businesses to easily update their data, or by calling our Customer Service Center at .
Keeping your debt financing down. The capital structure of your business-that is, the extent to which you use equity or debt to finance your operations-is an important determinant of your creditworthiness. If other companies see a lot of debt on your balance sheet, whether in absolute terms or relative to your competitors, they are less likely to extend credit as you pose greater risk of default.
Contributing to your own profile. Some credit managers prefer detailed reports with a lot of supporting information, enabling them to assess risk based on a broader frame of reference. Communicating as much information about your business as you can to WVB FIS Co., Ltd. assures a more robust report. Likewise, doing business with companies that you know frequently report their experiences to us builds your profile.
Keep an eye on the key financial indicators in your own report to see how they compare to other companies in your industry. In doing so, you can benchmark yourself, identify areas for improvement and assure a profile with adequate information for a satisfactory credit investigation.
How do I get started with WVB FIS Co., Ltd.?
You should make sure you have a WVB FIS Co., Ltd. business credit profile if:
You plan to do business with foreign companies
You plan to buy goods from outside Vietnam
You plan to raise capital from overseas investors or partners
You are planning to obtain a business loan
You need to purchase or lease equipment
Your cash flow is tight
You want to ensure you are getting a fair deal from lenders compared to your competition
You want to pay net 30 days instead of COD (Cash On Delivery) These issues and dozens other like them can be addressed by having a strong business credit profile. A good rating provides you with the financial freedom to take the steps you need to grow, and is a straightforward, unbiased method for other companies to assess your level of risk when considering taking you on as a creditor. A poor credit rating is a certain barrier to growth and success, preventing you from getting adequate funding on fair terms.
Communicating directly with WVB FIS Co., Ltd. will help establish your business credit in less time. If you are a new company, WVB FIS Co., Ltd. can help you build a complete business credit profile from the ground up; if you have been in operation for a while, you will want to improve and/or protect your business credit profile. Find out more about how to establish, monitor, improve, or protect your business credit.