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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 jeopardize 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 closeout 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.