Financial obligations are any debts such as money, notes, supplier payment terms, or other forms of financial pledges that a person or business is obligated to settle within an agreed time frame. This is a crucial aspect of running a business because it involves intensive and rigorous financial management.
In addition, financial obligations establish legal and beneficial relationships between two or more parties, which makes them more crucial for businesses, especially startups and small to medium-sized organizations (SMEs) that aspire to grow their businesses.
On the other hand, financial obligations are not just mere chores that need to be fulfilled, as settling them definitely has, more often than not, benefits for your business.
How repaying financial obligations on-time will benefit your business?
Repaying financial obligations may be challenging, but doing so reflects your and your business’ diligence, thereby providing you with greater long-term benefits. With proper financial planning, you may be able to attain this and settle your financial obligations on time, enabling you to sustain your operations without any delays.
Furthermore, when you are a good payor, your business may benefit from the following:
- A better credit score and financing terms
When you pay your financial obligations on time, you will obtain a good and strong business credit score, which is advantageous for your business because it will give you more flexibility when applying for business loans or financing from crowdfunding platforms, lending marketplaces, and other financial institutions and provide opportunities that may ease your growth and expansion plans in the future.
With a better credit score and financing terms, you can fasten your financing application process and receive larger loan or financing amounts with friendlier payment terms, which may help your business grow more quickly.
- A more favorable relationship with a financing partner
Having a strong relationship with your financing partner can encourage the achievement of your business’ financial goals by providing you with additional options to control or mitigate potential financial risks and bridge the gap in your cash flow or working capital cycle.
- An access to more financing opportunities in the future
Having more financing options and alternatives for your business is just one strategy for achieving success. You will have more alternatives to acquire additional working capital to pay employee salaries, fulfill larger order demands, and pursue new business expansion initiatives if you have more financing options.
What happens if you fail to repay your financial obligations?
Since financial obligations involve legal agreements, they hold the highest concern and gravity, as they help maintain your creditworthiness and the harmony of your client-supplier relationship. Always be proactive in your financial planning to maintain the repayment schedule and avoid the following:
- Accruing late payment penalties
Similar to personal loans, when a business fails to pay its financial commitments on time, interest or late fees will accumulate and have a negative impact not only on your payment for the following statement date but also on your business' reputation.
- Poor transactional history and credit score
As explained previously, failure to meet your financial commitments on time has a negative impact on your reputation, resulting in a negative historical transaction that pulls down your credit score. These incidents may impact your creditworthiness and limit your future financing options.
- Litigation to compel debt settlement
When your business fails to meet its financial obligations, legal action is one of the most challenging outcomes that could occur. This will weaken your business’ credibility, reducing your chances of attracting investors and broadening your business opportunities when you need them.
Top tips to pay off your business financing on-time
To better understand the advantages of timely repayment of financial obligations, which may help business owners become more disciplined and responsible, and to further help you become one, here is a quick guide to better managing your repayments:
Pro Tip: Communication is the key!
Looking for the right business financing partner? We are here to help you!
It is undeniable that businesses go through some growth challenges when it comes to running their business, and financing partners like Investree understand these challenges that SMEs face.
To help you pay your suppliers on time and serve your clients better, Investree connects SMEs with investors that can fund up to 80% of the invoice amount. With Investree's no-collateral, dependable, and risk-based business financing options with low interest rates and flexible payment terms, your business can have a better opportunity to grow through timely financial obligation repayments.
If you want to have a reliable financing partner, you can kickstart your journey with us here!
