Improving Your Credit By Paying Bills Later, Rather Than Sooner!


Welcome! You Are Here arrow3 Articles/How To/Improving Your Credit By Paying Bills Later, Rather Than Sooner!.


Improving Your Credit By Paying Bills Later, Rather Than Sooner

 

Every business will get to the point where suppliers will offer terms
on bills, rather than requiring payment up front or on delivery. Their bills
will probably be marked "2/10, net 30." This means you get a 2%
discount if you pay within 10 days, and the bill is due within 30 days. Many
business owners will jump at the opportunity to save the 2% by paying early,
and rightfully so. However, believe it or not, they can help their credit
rating by paying at the end of 30 days.

How is this so? It's all a matter of your business' CREDIT HISTORY. All
of the companies who offer you terms will be reporting your history to
various credit bureaus. These bureaus are who gets consulted by banks when
they decide whether or not to give you a loan.

By always taking advantage of the 2% discount, a business establishes a
paying pattern. Thus, if you've been paying a company's bills in 5 days for
the past year, this is what they will expect from forthcoming bills. Now, say
one month has a tighter cash flow than normal, and you must take 20 days to
pay that bill.

This sends up a red flag for the billing company. You normally pay in 5
days, why are you now paying in 20? Even though you paid the bill well within
the deadline, you have given a sign that you had a cash flow problem. This
uneven paying pattern can show up on your credit rating.

Even though all your bills are paid on time, an uneven paying pattern
can jeopardise your future chances for more and larger credit limits.

Now, if you always pay your bills on the 25th day of the due period,
even when you can pay them early, that cash poor month won't look any
different to the billing company. Most companies would rather grant terms to
a company that always pays on the 25th day, than one that sometimes pays
early, sometimes pays later, as this reflects an image of disorganization and
uneven cash flow.

Also, always paying toward the end of the due period will aid your cash
flow. If you pay your bills consistently, at the same time every month, you
will not be surprised by a sudden cash shortage. For example, say you decide
to pay a bill early one month. Then, the next week, your main supplier calls
to tell you about a close out deal he has that would double your profits.
Only problem is he can't offer terms, it has to be cash. Because you paid
that bill early, you can't take advantage of the special deal. If you would
have waited to pay it, your cash flow would have allowed the purchase, and
the resulting higher profit margin would have yielded the cash to pay the
bill.

So, you see, paying bills later, and not
taking advantage of any early payment discounts, CAN work to your advantage.
You need to consider your future plans and decide if saving 2% now is really
worth it.



----------- END ----------

You are heresignpostArticles/How To/Improving Your Credit By Paying Bills Later, Rather Than Sooner!

arrow_upTop of Page

dog2