How bad business credit affects your supplier relationships

Maintaining healthy relationships with suppliers is important for success for many businesses. Your business’ creditworthiness is one factor that can significantly impact these relationships.

Your business credit score plays a vital role in determining how suppliers perceive your financial stability and reliability as a partner.

Find out the repercussions of bad business credit on supplier relationships, and the steps you can take to mitigate these effects.

Limited access to quality suppliers

Suppliers aim to minimise their risk when entering into partnerships. Your business credit score serves as an indicator of your financial health and ability to fulfil payment obligations. With bad business credit, your options for sourcing quality suppliers may become limited. Suppliers may be hesitant to extend credit terms or provide favourable pricing, as they may perceive your business as high-risk. This can lead to higher costs, lower product quality, or difficulties in obtaining the necessary materials and resources.

Strained trust and reliability

When a business has poor credit, suppliers may question your ability to honour payment terms or fulfil contractual agreements. This lack of trust can strain relationships and potentially lead to strained negotiations, delayed deliveries, or even termination of existing contracts. Your business may find it challenging to maintain consistent supply chains, affecting your overall operations and reputation.

Limited business loan options

Bad business credit not only affects your relationships with suppliers, but also limits your access to business loans. Lenders are less likely to offer business loans to businesses with bad credit, hindering your ability to invest in growth opportunities or manage cashflow effectively. This could lead to not being able to pay suppliers on time, straining the relationship.

Diminished negotiation power

When negotiating with suppliers and vendors, having a good business credit score can give you a stronger position to secure favourable terms. With bad business credit, you lose leverage in negotiations, making it difficult to negotiate lower prices, longer payment terms, or additional benefits. Suppliers may require upfront payments or shorter payment cycles, which can impact your working capital and strain cashflow.


Steps to mitigate the effects of bad business credit

Step 1: Take steps to build a good business credit score.

You should implement strategies to improve your business credit score, such as making timely payments, reducing outstanding debt, and keeping credit utilisation low.

See 8 ways to build a good business credit score.

Top tip: review your business credit score to check its accuracy and find areas to potentially improve it.

Step 2: Communicate openly

Be transparent with your suppliers about your business credit score. Honest and proactive communication can help build trust and demonstrate your commitment to improving your financial standing.

Step 3: Find business loans for bad credit

You can explore your options for business loans, such as business credit cards designed for companies with lower credit scores. These options can help bridge the gap and provide necessary funding for operations and growth.

Find out more about business loans for bad credit.

Step 4: Establish strategic partnerships

Consider forming strategic partnerships with suppliers who are willing to work with your current credit situation. Building long-term relationships based on trust and reliability can open doors to better terms and increased flexibility.

Bad business credit can significantly impact your supplier relationships, affecting your access to good suppliers and favourable terms. By actively working to improve your business credit score, you can mitigate the effects of bad credit.

Check your business credit score. 

Thanks to our partners at Capitalise who have provided the content for this article. Find out more about how we are working together and how you can improve the health of your business finances here.