Paying your business bills follows the same rule of thumb as your personal bills: Maintaining an on-time payment schedule for all of your bills will help keep your credit, and therefore your business, in good standing. Furthermore, not paying your bills on time causes a trickle-down effect that could negatively impact your business.
Credit Score Effects
According to the Small Business Administration (SBA), it is of the utmost importance to your businessï¿½s success to pay your bills on time. Doing so will create a history of positive payments and thereby increase your credit score. The better your credit score, the easier it will be to borrow funds for expansion or other business needs in the future.
This extends to the credit offered to your business by your vendors and suppliers. A good credit score will help you get what you need under the best repayment terms possible, helping you positively manage your cash flow.
ï¿½Insufficient or delayed financing is the second most common reason for business failure. And, since most loan decisions below $100k are automated, the business credit file will often dictate the amount and terms of a loan,ï¿½ the SBA reports.
Poor credit scores result in a much higher interest rate on loans, making loan repayment more expensive than the loan itself.
Business Relationship Concerns
When you pay your vendors on time, they are more likely to extend credit or work with you on improved loan and/or purchasing terms when cash flow is tight.
According to Entrepreneur Magazine, if there comes a time when cash flow is at a halt or thereï¿½s been an unexpected drop in sales, you can tap into the relationships youï¿½ve built with your suppliers as a responsible customer. They may be more likely to extend you more time to pay off the bill, or even view the debt as a mini-loan with extended repayment terms.
Furthermore, donï¿½t forget about the most important relationships your business has: those with your employees. Although payroll costs arenï¿½t considered a typical bill, you should include them in your bill-pay and cash flow structure. Payroll is a crucial driver of business success: if you donï¿½t pay your employees on time, they will look for better opportunities elsewhere, reports contributor Bill Fay in an article for Debt.org, Americaï¿½s Debt Help Organization.
The Dangers of Not Paying
Another payable that you should view as a bill is the taxes your business owes to the federal and state governments. In fact, the taxes you pay for federal payroll, state sales and state income are extremely important to the success of your business, and not paying them on time could be detrimental.
ï¿½The Internal Revenue Service (IRS) has broad powers to garnish wages, take control of business equipment and property, and even seize funds from an Individual Retirement Account (IRA). It can also charge you with a crime for failing to deposit your payroll taxes appropriately,ï¿½ Fay reports. You should not take any of these concerns lightly, as they have graver implications for your livelihood than just your businessï¿½s profits.
Additionally, donï¿½t forget about your businessï¿½s utilities, or rent payments if you are leasing space.
ï¿½You canï¿½t run a business without electricity and a phone line. Lights, Internet service, heating and air conditioning, etc., are essentials. If you are behind on your utility bills, your services can be cut off and leave you in the darkï¿½literally,ï¿½ Fay warns. If youï¿½re renting and are behind on payments, your landlord could very well evict you, ending your business altogether.