Corporate credit ratings are set by several ratings agencies, with AAA being the highest rating available. Earning a AAA credit rating for your corporation takes time, diligence and perseverance. Building up your credit rating over time by taking the right steps and avoiding all negative reports can eventually result in a AAA rating, opening doors to the lowest interest rates and most favorable debt terms on the market.
Manage Business Loans
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Credit ratings revolve around debt. Thus, debt management is the most important factor in reaching for a AAA rating. Make loan payments on time as often as possible, and always contact lenders to request official extensions if you cannot meet payment deadlines. Avoid over-leveraging your balance sheet by carrying too much debt compared to your cash and productive assets, as this can dilute important debt ratios that ratings agencies analyze.
Manage Business Credit
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Diligently manage your use of credit to show ratings agencies that you are responsible with revolving debt. Maintain at least two credit accounts--one with a credit-card company and another with a supplier. You can open additional lines of credit as your revenue increases, but avoid keeping too many accounts open at once. What constitutes too many accounts varies based on the size of your company and its revenue. Maintain a number of accounts that will keep your interest coverage ratio and debt-to-equity ratio competitive with others in your industry. Use your credit accounts regularly and keep low balances on each.
Manage Cash Flow
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Keep an ample amount of cash and liquid assets on hand at any given time to maintain a high cash flow to debt ratio. Creditors and ratings agencies see cash flow as a good indicator of the ability to pay short-term debts. Identify your financial weaknesses by comparing key ratios against competitors, and do what is necessary to adjust each ratio over time. For example, if your debt-to-assets ratio is higher than competitors, pay off some of your debt, boost your cash reserves and purchase a bit more inventory to lower it.
Ask Suppliers to Report On-Time Payments
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Once you have established a strong relationship with a supplier, request that they report your on-time payments to credit ratings agencies. Many companies will only report delinquencies and defaults unless specifically asked otherwise. If you ever fall into default, specifically request that the lender or supplier report settlement of the debt. Ask for report verification for your records to be absolutely sure they fulfill your request.
Regularly Check Your Credit Report
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Proactively managing all of these critical factors is important, but keeping an eye on your actual credit report and responding to red flags can be just as beneficial. Assign an executive the responsibility of regularly requesting new credit reports and crafting strategies for mitigating any risk factors that appear. Business credit reports do not have negative impacts on credit ratings, so feel free to check your status regularly.
