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Collecting payments from clients can be surprisingly challenging. Every small business owner has experienced the frustration that comes from providing a valuable product or service and waiting days, weeks, or even months for payment. 

The best invoicing software does more than reduce the work that goes into creating invoices and collecting payments. It also helps you get paid significantly faster, improving the timing of your small business’s cash flows.

Forget waiting for checks to arrive in the mail, taking them to the bank, and waiting again for the deposits to clear. With invoicing software, your clients can pay you almost instantly, and you can get your funds in days instead of weeks or months.

Invoicing Software Options

Below are some popular and new invoicing tools and software.

Lendio’s Mobile App

Manage your business finances with confidence using our simple, centralized dashboard. Create quotes and invoices and collect payments from the same application where you manage your business bank account, track your cash flow, and even apply for a business loan. The Lendio mobile app is free to all users.

Sage

Like many other invoicing software, SAGE offers a combination of invoicing and accounting tools for small businesses. The Pro Accounting software starts at $346 for the first year and includes access for a single user, invoice and bill tracking, expense management, automated bank reconciliation, inventory management, fraud management and reporting.

Freshbooks

Freshbooks offers invoicing and bookkeeping software. You can try the software free with a 30-day trial. After that plans start at $8.50/month. On the lite plan, businesses can bill up to five clients, automate recurring invoices, send out estimates, send out unlimited invoices and accept credit card and ACH bank transfers. Plus and Premium plans include more robust accounting features.

Wave

Wave offers free accounting, invoicing and banking software. Instead of charging for the software the company charges a percentage for payment processing. It also offers optional payroll software and advisory services for an additional cost.

Benefits Of Invoicing Software

Invoicing software can be an invaluable tool for any small business. These are some of the most significant ways you can use them to your benefit.

Online Invoicing Options

In a world where convenience is increasingly in demand, online payment processing is no longer optional for many small businesses. If it’s at all possible for your business model, your clients will expect to be able to complete your invoices online.

If you can’t meet those demands, it’ll soon start to cost you business if it hasn’t already. Fortunately, invoice software is an affordable way to collect funds remotely. For example, the free plan lets you access our invoicing tool at no cost.

In addition, the convenience of the system isn’t just beneficial for your customers. It also means you’ll receive payment for your products or services more quickly, reduce the frequency of unpaid invoices, and improve your cash flow.

Streamlined invoice creation

It’s time to say goodbye to building invoices in a spreadsheet or document and emailing them to clients as a PDF. With invoicing software, you can effortlessly generate personalized and professional invoices in minutes.

Once you’ve created one with a structure that you like, you can save it as an invoice template and duplicate it for future transactions.

Not only will the software save you a significant amount of time and energy, but your clients will appreciate the increased quality of your documentation. Holding yourself to a higher standard of professionalism will only benefit your client relationships.

Automatic collections processes

Traditionally, the most frustrating part of invoicing is collecting from slow-to-pay clients after the due date has passed. You’ll inevitably run into those who have many other redeeming qualities but can’t seem to complete invoices on time.

That can have a significant negative impact on your business’s cash flow. If you find yourself going for weeks at a time without receiving payment for your products or services, it can cause a lot of financial strain and even push you into debt.

Fortunately, software can make the collections process the easiest part of invoicing. With it, you can schedule automatic follow-up emails that will go out to delinquent clients professionally and promptly without having to lift a finger.

Integrated Invoices And Bookkeeping

If your business sends invoices and purchases regularly, keeping your financial records in order can be surprisingly time-consuming. There’s a reason that full-time bookkeeping and accounting services exist.

When you use old-fashioned invoices, you create a lot of work for the individual in charge of revenue and expense tracking. They have to adjust the books for each transaction by hand, and there’s a lot of room for human error.

Once again, invoice software can help you automate the process, saving you or your accountant hours of work. Plus, when your invoicing feature integrates directly with your bookkeeping and accounting software, your Lendio account and records are always up to date.

How To Choose Invoicing Software

Invoicing is critical for most small businesses—it is likely the mechanism for how you get paid for the work you do. However, it can become tedious and frustrating for many of us who work with many different clients.

Why do you want invoicing software? For any small business using invoices, the overarching goal of an invoice is to get paid what you’re owed on time. Good invoicing software helps you accomplish this task—and more.

You should aim to create standardized, easy-to-understand invoices that can be made in minutes with a few keystrokes. Although it depends on your clients, ideally you don’t have to use different invoice templates for each entity you do business with. Invoicing software helps you homogenize and accelerate your invoicing operation.   

1. Easy to Create Invoices

Probably the most critical function of any invoice software is the ability to create invoices, which you want to be able to do quickly, easily, and repeatedly. You want your invoice recipients to easily recognize how much they owe you, where they should send payment, and when you expect it—you want to give them no excuses for being late with a check. Most likely, you didn’t go into business to create invoices—solid invoicing software makes this part of the job a snap.

2. Branding Capabilities for Your Invoices

Along with making invoice creation breezy, look for invoicing software that easily allows you to add branding. Again, your big, bright logo sitting atop an invoice helps clear up any confusion on the part of the payee. Creating colorful invoices with your excellent branding also ensures you come across as highly professional and organized. Good invoice software can help you create documents in your brand voice for all of your clients. All you should have to do is switch out the type of work being invoiced and who you are sending the invoice to.

3. Ability to Create Recurring Invoices

Invoicing software eases the burden of being a small business owner by chasing down payments for you. You should be able to set up recurring invoices to your repeat clients so you don’t have to remind yourself to send something out every week or month. Even better, some options allow clients to set up automatic payments so you get your payments as smoothly as possible. If you work with clients on a long-term, repeated basis, invoicing software means you don’t have to constantly remember to send out invoices to them.   

4. Multiple Payment Methods

Unfortunately, it can seem that clients will find any reason to delay payment. We’re often told that checks have been “lost in the mail” for weeks on end. Good invoicing software combats this issue by allowing your clients to pay you in multiple ways. Some can even allow you to receive payment by credit card or bank transfer, ensuring those funds enter your account as quickly as possible. Oftentimes, you can receive your money within 72 hours of your client paying the invoice through an automated clearing house (ACH) options.

5. Tie Invoices to Your Expenses So You Can Monitor Revenue

Invoices are only one element of your business equation. They represent your cash in-flows, and, in many cases, invoices might be the entirety of your revenue. On the other end of the equation are expenses like rent, wages, equipment, and office supplies. The best invoicing software links the two parts of your finances so you can see how your business is earning and spending money. For the long-term, this feature will give you a granular, data-driven ability to create accurate business planning documents, not to mention it helps take the sting out of tax time.

6. Identify Unpaid Invoices

If you have a long roster of clients, keeping up with your invoices is a job in itself. Determining who owes you what and when, along with who is delinquent, can be extremely frustrating and is likely not what you signed up for when you decided to go into business. Invoicing software can quickly identify which invoices are unpaid and how long they’ve been delinquent. It also easily sends invoice reminders on a recurring basis so you can let your payees know you are paying attention.

7. Change Your Pricing and Offer Deals

Depending on your business, you might find your pricing changes with the seasons, business traffic, or other factors. However, it would be nice to determine price changes for your business without doing line-by-line math in every one of your invoices. Good invoice software allows you to easily change up your pricing in case you want to offer a discount or need to increase costs due to a surge in demand. Even better, software can allow you to easily set prices by either dollar amounts or percentages.

Why A Professional-Looking Invoice Helps Your Business

Invoices are more than just a way to document transactions with your clients and collect payments from them. Just like your website, emails, and any other public or client-facing communications, they’re also a representation of your business.

As a result, investing in a small business invoicing software that can produce more professional-looking invoices may benefit you in similar ways, such as:

• Professional reciprocity: Your relationships with your clients are just like those in your personal life. Consciously or not, they’ll take cues from how you treat them and treat you similarly. Setting a high standard for professionalism with your invoices will only encourage them to do the same with you.
• Respect and credibility: Successfully closing a sale with a client means they think you’re the best option readily available. Anything you can do that builds further respect and credibility with them, including maintaining a professional image, will help you stay ahead of your competitors.
• General goodwill: Using invoicing software to make professional invoices does more than just present an attractive payment page. It also makes completing your invoices a more convenient experience. Making things easier for your clients whenever possible is a great way for freelancers and business owners to promote recurring transactions.

These may all be intangibles, but they manifest themselves in a tangible way. Making your customizable invoices look more professional can directly increase your client’s timeliness in paying you and smooth out your cash flows.

When applying for business loans, credit cards, or other lines of credit, lenders put your credit scores in the spotlight. Credit scores tell lenders at a glance how responsible you are when it comes to borrowing money and paying bills. But just how important is that 3-digit number? Here's what you need to know about the highs—and lows—of credit scoring. 

Credit Score Ranges Explained

There are different FICO score variations, but the typical score range you're working with is 300 to 850. VantageScores, which are an alternative credit scoring model, work along the same lines. The current VantageScore version also ranges from 300 to 850. 

What Is Good vs. Bad Credit?

• Payment history: 35% of score
• Credit usage: 30% of score
• Credit age: 15% of score
• Credit mix: 10% of score
• Inquiries for credit: 10% of score

That range leaves a lot of gray area in-between where you have different levels of credit. For example, here's how FICO breaks down its credit score ranges and grades:

• 800+: Exceptional credit
• 740 to 799: Very good credit
• 670 to 739: Good credit
• 580 to 669: Fair credit
• <580: Poor credit

Why Credit Scores Matter When Seeking Financing

A FICO score in the excellent range virtually guarantees that you'll be approved, whether you have a perfect 850 credit score or not. In fact, lenders typically don't distinguish much between a score of 800 or 850. Either one sends a strong signal that you're a low-risk borrower, based on your past payment history and credit usage. 

Having a credit score in the poor or fair credit range, on the other hand, could make it much more difficult to get approved for loans. You may be limited to certain borrowing options, such as a secured loan or line of credit. Generally, the lower your score, the riskier you appear in the eyes of banks and lenders. 

Your credit score also counts when it comes to how much you pay for a loan. As a rule of thumb, the higher your credit score, the lower the interest rates you can qualify for. Getting a low rate is important, whether you're taking out a loan for your business or any other purpose because it means less money you have to pay back over time. 

Is Aiming for a Perfect Score Worth It?

With that in mind, it's helpful to work on improving your score as much as possible, particularly if you plan to borrow money to fund your business. If your credit score isn't as high as you'd like it to be yet, here are some of the smartest things you can do to get it on the right track:

• Pay your bills on time. Payment history accounts for the largest share of your personal credit score, so get in the habit of paying on time. Setting up automatic payments for your personal and business expenses can make this easier.
• Reduce your debt. Carrying high balances on your credit cards can work against your score. Prioritize paying down some of what you owe, aiming to use 30% or less of your total credit limit.
• Limit new inquiries for credit. Applying for new credit cards or loans can knock a few points off your score each time. Stick with applying for new credit only when it's absolutely necessary.

As a small business owner or someone who is self-employed, tracking your business-related expenses and understanding what you can and can't deduct while doing your taxes is critical. Not only can it maximize your small business deductions and save you lots of money, but it can also help you reduce your risk of being audited.

Some of the most common business-related expenses are travel costs. Whether you drive to meetings often or fly out for conferences and stay in hotels, understanding what is and isn't considered a travel expense is an important aspect of small business accounting.

What Is a Travel Expense?

However, not all business-related travel expenses are deductible. According to the IRS, you can't deduct anything extravagant or unnecessary, so don't try ordering a private limo service to pick you up from the airport and writing it off. You also have to be traveling away from the general area considered your "tax home" for at least 1 workday to deduct your costs as travel expenses.

Different Types of Travel Expenses

Transportation

Additionally, if you use your car to get around on a business trip, you can claim mileage on your taxes and deduct it at the standard mileage rate. According to the IRS, the mileage rate for 2020 is 57.5 cents per mile that you drive for business-related usage.

Airfare

Accommodations and Lodging

Food

Miscellaneous Travel Expenses

• Shipping and handling costs for luggage or work-related materials to and from your destination
• Laundry
• Business-related communication (business calls or faxing, for example)
• Tips paid for work-related expenses
• Other necessary costs related to business travel

What Isn't Considered a Travel Expense?

You can't deduct any travel expenses that aren't business-related, which includes personal expenses completed while traveling for business. You also can't deduct travel expenses that are superfluous or excessive, such as luxury purchases. If your family travels with you on a work trip, their expenses don't count as your travel expenses.

When you have business-related expenses in your home city, they may or may be deductible. However, they aren't considered travel expenses.

Knowing what counts as a travel expense will help you understand what you can and can't deduct when doing your taxes. Pair that knowledge with common small business tax credits, and common small business tax mistakes, and you'll be able to maximize your refund and avoid being audited.

Every successful business is built on a successful plan. And one of the most important aspects of your plan will be the marketing strategy. After all, if people don’t know about your business, they will never be able to pay for your goods or services.

As you strategize your marketing efforts, you’ll need to pay close attention to your budget. There are diverse ways to approach your marketing budget. One popular method is to let the expenses lead the charge. As you list out key marketing executions, you’ll keep a running tally of the cost. Then you take the total cost and adjust your budget to accommodate your chosen marketing efforts. This aggressive approach makes marketing a priority, sometimes at the expense of other aspects of your business.

An alternative way to approach your budget is by earmarking a percentage of your revenue for marketing. This approach is a more reactive way of handling your efforts, as your strategy will need to be reigned in any time revenue decreases. But this method helps contain costs and ensures that the other areas of your budget won’t be infringed upon by marketing expenses.

Regardless of your chosen budgeting approach, it’s important to understand the various expenses you should include in your budget.

“Marketing expenses are an important consideration for all businesses because marketing is a primary business function that creates a customer for the business,” explains a business finance report from the Houston Chronicle. “It's critical for business owners to understand the significance of marketing expenses, its accounting definition, marketing expense management, and tax treatment.”

This guide will introduce you to many of the common marketing expenses that small businesses deal with. It’s not intended to be a comprehensive list. Each business has unique elements and needs.

Marketing Expense Examples:

• Online presence: You can’t operate a successful business these days without a website. Plan on expenses related to buying a domain, designing your website, and paying for hosting. You’ll also want to have a blog and multiple social media accounts. These channels are relatively inexpensive to create and operate, but there will be expenses related to the creation of content.
• Digital tools and technology: The costs associated with digital tools typically have a great ROI because of the precious time the tools can save you. But you’ll still need to account for expenses such as email platforms, project management software, accounting software, or customer relationship management systems.
• Research: The best marketing is always guided by data. Plan on expenses related to surveys, industry reports, focus groups, product testing, or magazine subscriptions. You can minimize these expenses by leaning to the digital side, where tools like SurveyMonkey allow you to conduct high-impact research without the hefty price tag.
• Advertising: The best advertising campaigns involve multiple media channels. Examples of possible expenses include display banners, TV spots, radio ads, direct mail, and print ads.
• Printed materials: This category can be a catchall for various printed pieces, such as business cards, catalogs, brochures, coupons, vouchers, or posters. Depending on your industry and location, these expenses vary significantly.
• Samples or gifts: One of the best ways to help someone understand the benefits of a product or service is to let them experience it firsthand. Consider allocating money for samples and gifts to lure customers to your business or reward their loyalty.
• Sponsorships: This approach allows you to connect your business with others in a way that attracts new customers. Affiliation is a powerful tool, so it could be worth the cost.
• Equipment: Accomplishing your marketing goals may require additional equipment. For example, if you’re taking product photos, you might want to invest in a quality camera. Or you might need tablets to use for presentations at trade shows or networking events.
• Promotional items: If this is a marketing strategy you plan to use, there will be expenses related to bags, shirts, pens, electronics, sunglasses, stress balls, or whatever else you plan to give away.
• Events: This category includes expenses such as flights, ground transportation, hotels, meals, registration fees, booth displays, and other necessary supplies. Depending on your industry, this category could potentially be a major component of your marketing budget.
• Public relations: You might want to enlist the help of communications experts in your marketing. A talented public relations expert comes at a premium cost, but if you use their skills to the fullest advantage, it can be worth it.

Vendor credit, loans, and other lines of credit can be essential in helping your business maintain cash flow and keep up with customer demand. Your ability to obtain financing hinges largely on what’s included in your business credit reports.

These reports tell suppliers, vendors, and lenders how responsible your business is when it comes to borrowing money and repaying it. The more often you pay on time and the less debt you carry, for example, the more favorable the odds are that you’ll qualify for financing.

When your business credit is less than perfect, improving it belongs at the top of your to-do list. There are several things you can do to clean up your small business credit reports and improve business credit scores. This guide breaks down everything you need to know to work your way toward a better business credit rating.

Small Business Credit vs. Personal Credit: What’s the Difference?

It’s important to keep in mind that personal credit and business credit aren’t the same things. Personal credit history is associated with your personal identifying information. Chiefly, that means your Social Security number.

Personal credit reports are generated by the 3 primary credit reporting agencies: Equifax, Experian, and TransUnion. Information from your personal credit reports regarding loans, credit cards, and other debts in your name is used to calculate your personal credit scores. These credit reports and scores are what lenders look at when you apply for new credit. Landlords, utility companies, and employers can also check your personal credit for screening purposes with your permission.

Small business credit is different. Your small business credit reports detail financial information related specifically to your business. Instead of using your Social Security number, business credit information is linked to your business’s Employer Identification Number or EIN. Your business credit report includes information related to financial accounts opened in your business’s name.

It’s important to note that you may use your Social Security number initially to obtain business credit. For example, if you’re applying for a business credit card, the credit card company may ask for your Social Security number, EIN, or both. Once the account is opened, your account activity would be reported to your business credit reports.

Now that you’re clear on the differences between personal and business credit, here are 7 helpful ways to polish up your small business credit.

Start with a Thorough Review of Your Credit History

Before you can address any issues with your business credit, you first need to know what those issues are. That means checking your business credit history.

There are numerous options for pulling business credit reports, both free and paid. Dun and Bradstreet, for instance, is considered the gold standard for business credit reporting. However, you can also get business credit reports through Equifax and Experian, as well as credit monitoring services such as Nav or Capital One’s Business CreditWise tool.

What’s important to note is that different business credit reports may contain different information, depending on what’s being reported by your creditors or vendors. When reviewing your reports, check closely to make sure the following types of information are accurate:

• Your business name and address
• The Standard Industrial Classification (SIC) code used to identify your business
• Payment history
• Creditor or vendor information, including account numbers, balances, and available credit
• Public records, such as judgments or liens

When checking your credit reports, it’s important to make sure these items are being reported correctly. Unlike consumer credit reports, business credit reports aren’t covered by the Fair Credit Reporting Act. This means there’s no formal dispute process in place if you find an error on your business credit history. However, Dun and Bradstreet, Equifax, and Experian each have policies in place for business owners to dispute errors or inaccuracies.

You should also look for any items on your credit report that might be hurting your score, such as late payments or past due accounts. If you have any of these on your business credit, you can move on to step 2.

Get Past-Due Accounts Up-to-Date

If your credit report review reveals late or missed payments, make getting those accounts current a priority.

Reach out to each creditor or vendor that you’re behind with to discuss terms for bringing the account current. If you have multiple accounts to negotiate, consider whether you can work out a payment plan that allows you to make progress with each of them. Alternately, you might want to pay the most delinquent account in full and work out payment agreements for the rest.

Once your accounts are current, you can re-establish a positive payment history by making on-time payments going forward. While different factors influence your business credit scores, payment history ultimately carries the most weight since creditors and suppliers want to know they can count on you to pay on time.

You might be wondering if bringing late accounts current will give your business credit score an automatic boost. The short answer is no. Even though the account may no longer be past due, the negative payment history will remain on your credit report. You can, of course, reach out to your creditor to ask them for a courtesy removal of negative marks, but they’re not obligated to honor your request.

Add Relevant Information to Your Credit Report

It’s entirely possible that not all of your vendors or creditors report your account history to the business credit bureaus. Or they might report your account to one business credit agency but not the others.

Making sure that you’re getting proper credit for a pattern of responsible credit use is having all of your accounts listed on your credit history. With Dun and Bradstreet, for instance, you can report any open tradelines even if your vendors don’t report them, which could help with improving your credit history.

It’s also possible to help your business credit using bills related to expenses other than debt. A reporting service like eCredable, for instance, allows you to submit account history for things like utilities or cell phone services. This information is then transferred to the credit bureaus.

It’s important to note that services like eCredable may report to smaller credit bureaus, rather than larger companies like Dun and Bradstreet or Equifax. But it can still be a helpful way to improve your small business credit using your payment activity for bills you’d already pay anyway.

Work on Reducing Credit Utilization

Getting your payments in on time is the most effective way to clean up small business credit. Second to that, however, is minimizing the amount of revolving debt you’re carrying on credit cards or revolving credit lines.

Reducing some of what you owe could improve your credit utilization ratio, which in turn can help your credit score. Make a list of each revolving debt owed, including both the current balance and the total credit limit. Then, divide the balance by the credit limit for each one to determine each debt’s credit utilization.

For example, if you have a small business credit card with a $10,000 limit and you owe $5,000 on it, your credit utilization is 50%. Credit experts typically recommend that for the best credit score results, you keep your credit card utilization at 30% or less.

Aside from reducing balances on credit cards or lines of credit, there are 2 other strategies you can try to improve credit utilization. The first is to call your credit card companies or log in to your online account and request a higher credit limit. The second is to open an entirely new credit card account.

Either option could increase your total available credit. Assuming that your balances remain the same, this would help your credit utilization ratio. For example, say that you increased the limit on your card from $10,000 to $15,000 but kept the same $5,000 balance. Your new utilization ratio would be a more favorable 33%.

The key is not expanding your debt when expanding your credit limit. Doing so would only be counterproductive to your business credit score and potentially add strain to your business cash flow when it’s time to repay it. Something else to keep in mind is that applying for a new business credit card could ding your personal credit rating slightly if you apply using your Social Security number. Each new inquiry for credit can trim a few points off your personal credit score.

Consider Consolidating Business Debt

If you have business debts spread across multiple credit cards, loans, or lines of credit, consolidating them could make managing the balance easier while also potentially yielding positive credit results.

When you consolidate business debt, you’re getting a single loan to pay off your existing balances. You then make payments to that new loan going forward.

This move can do 2 things for you. First, it can make your debt more manageable. When you have just a single payment to make each month, you reduce the odds of forgetting to make the payment and incurring negative payment history on your credit report. That alone could help your score if you’re able to establish a lengthy track of paying on time.

The other benefit of consolidating business debts into a single loan is the potential to make your debt less expensive. If the interest rate on a consolidation loan is less than the average combined rate you were paying on your debts, that can translate to savings that you could reinvest elsewhere in your business.

If you’re considering consolidating business debt, pay attention to the terms different lenders offer. Compare the interest rates, fees, minimum and maximum borrowing limits, funding speed, and the minimum requirements for approval. Ideally, you should be looking for a loan that represents the best combination of favorable terms with a payment that’s realistic for your business cash flow.

Separate Personal and Business Spending

When you have a sole proprietorship or a small business with just a few employees, it may be tempting to use business and personal credit interchangeably, but this can be a mistake. Mingling expenses and debts can result in a negative impact on both your business and personal credit histories if you miss payments or max out credit cards.

If you use credit cards to fund your business, stick with business credit cards for those expenses. Avoid charging personal expenses to business cards or business expenses to personal cards. This practice can simplify things when it’s time to separate deductible business expenses for tax reporting purposes, and it can keep your personal credit activity from impacting your business credit history—and vice versa.

Just keep in mind that separating business and personal debts doesn’t necessarily separate your liability. If you open a business credit card or take out a business loan that requires a personal guarantee, you can be held personally responsible for the debt if your business defaults on the payments. A defaulted credit card or loan account could then be reported to your personal credit history.

Monitor Your Business Credit Regularly

The last tip for cleaning up business credit is simple: keep an eye on your credit history.

When you’re continuously monitoring your credit, problems like errors or potentially fraudulent accounts are less likely to hurt your score since you can address them before any real damage is done.

The easiest way to monitor business credit may be using a free service. Remember to read the fine print to understand what type of services you’re receiving and how your business and personal information is being accessed before entering into an agreement for free or paid credit monitoring.

Why Your Small Business Credit Matters

One of the most important reasons to take care of your business credit is financing.

In an ideal world, you may never need a loan or credit card—your business finances are sustained entirely by your cash flow. But that’s not always realistic.

If you’re planning to expand your business or purchase an expensive piece of equipment, for instance, you may not have the cash on hand to cover those costs. Or, if you operate a seasonal business, your cash flow may experience ebbs and peaks throughout the year.

In those scenarios, financing can help you maintain business as usual and continue pursuing growth opportunities. While your credit isn’t the only thing lenders consider when applying for a loan, line of credit, or business credit card, it is something that comes under scrutiny.

If you have poor business credit, that could limit your financing options. For instance, you may have to use short-term financing methods, such as a merchant cash advance or invoice factoring, to meet capital needs. While those options are convenient, they can also be more expensive than other types of financing, such as an SBA loan or a term loan.

Your business credit can also impact other credit scenarios with your suppliers. If you have a good credit score and you’ve always made reliable payments on vendor tradelines, then you may be able to renegotiate better credit terms. On the other hand, a poor credit history could make vendors reluctant to extend credit to you at all. That could make it difficult to get the supplies or materials you need, which in turn makes serving your customers more challenging.

Building Business Credit History from Scratch

Having limited or no business credit history is a situation you might be in if you have a newer business. In that case, some of the tips included here may not be as effective for helping to clean up your credit.

You can, however, take other approaches to create a positive business credit history. Here are some of the simplest ways to get started with building credit for your business:

• Apply for an EIN if you haven’t already
• Register for a DUNS number with Dun and Bradstreet, which is used to establish your business credit profile
• Open a small business credit card
• Automate your business’s monthly bill payments
• Apply for vendor credit
• Consider a small business loan

One last tip to know about business credit—your information is available to the public. Anyone can look up your business credit file.

That’s yet another motivator to work on cleaning up any past credit mistakes, since potential customers, vendors, or business partners may take a peek at your credit history. The more effort you put into improving business credit, the bigger your potential return when it comes to your bottom line.

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The word "audit" elicits fear, not unlike that of the Salem witch trials. Although punishments are less brutal (thank goodness), the government isn't afraid to set fire to your business. If the IRS decides to audit your company, your financials need to be in tip-top condition to avoid hefty penalties.

Audits aren't just about investigating your integrity—even honest small business owners can fail. These financial investigations care little about ignorance and lots about meticulous records.

But fear not! There are simple steps you can take now to guarantee your small business passes with flying colors. Although an audit is very unlikely (about a 0.5% chance), it's best to be prepared for the worst.

By taking these 6 steps now, you'll be ready if the IRS knocks on your business's door.

1. Keep Detailed Financial Records

Occasionally, the IRS audits businesses randomly. But more often than not, the IRS decides to audit businesses with suspicious tax returns. To make sure you're honest and can prove it, keep detailed records of all your income, expenses, losses, and deductions.

The law requires you to keep these records for up to 3 years, but most tax professionals advise you to keep it for at least 7. 

So, if the IRS has questions, you'll have easy-to-access answers.

While you're at it, make sure to separate your personal expenses from your business expenses. Keep a separate bank account and credit card for your business. This practice will help you identify the appropriate transactions without any confusion.

2. Create Digital Copies of Your Receipts

If you're using cloud bookkeeping software as we’ve suggested, uploading and organizing your receipts is simple. If you claimed deductions, you're going to need itemized receipts to prove your purchase. No expense is too small—make it a habit to create a digital copy of every business receipt.

3. Lean on Your Accountant and Bookkeeper

Get in touch with the accountant or tax professional who performed your tax return. They should help compile the appropriate documents. Also, make sure your bookkeeper is present, too. They'll be able to speak to the bookkeeping processes and help accelerate the audit.

Don't have an accountant or bookkeeper? Consider hiring one. Keeping track of your financial records is hard work—even if you're never audited, they'll be well worth the price. And if the IRS does decide to audit you, you'll be forever grateful you have help to lean on.

4. Be Transparent About Your Contractors

More small businesses are saving money by hiring freelance contractors instead of full-time employees. This approach saves the company from paying for benefits, paid-time-off, and other employee perks. But high expenses on multiple independent contractors trigger the IRS.

That doesn't mean you shouldn't use freelancers—it just means you need to make sure they qualify as independent contractors and not employees. The term you give them isn't as important as the 3 factors the IRS considers: Behavioral Control, Financial Control, and Relationship of the Parties. Review the IRS's guidelines to avoid misclassifying and receiving hefty penalties. 

If you pay any contractor more than $600, you need to file a 1099 with the IRS. Make sure every contractor sends you a signed W-9 before you pay them. 

5. Stay Up-to-Date on Regulations

Laws change, state and local taxes vary, and auditing rigor fluctuates. But the IRS won't let you use that as an excuse. It's your duty to stay current on all regulations and taxes. Stay compliant by verifying your tax settings are always up-to-date on the software you're using.

6. Hit the Deadlines

Not too late, not too early—just right. File your tax return too early, and you'll give the IRS plenty of time to review it meticulously. Even if you're 100% honest, it's best not to give the IRS extra time to dig for errors.

It's more important, though, to avoid late filings. If you fail to file on time (or fail to file at all), the eye of the IRS will find you. Imagine Sauron’s eye finding Frodo whenever he puts on the One Ring—it’s just like that. Make sure to meet all of your important deadlines—not just the yearly tax return.

An IRS Audit Isn't the End of the World

Usually. While an audit can be a major pain in the backside, it's not an indictment. It's an investigation. 

By following these 6 steps, you can avoid IRS suspicion and stay on your merry way. If the IRS does audit your business, whether at random or due to suspicious behavior, you'll be ready to survive unscathed. Don't wait for the unwelcome letter from the IRS to land in your mailbox—start audit-proofing your business today.  

Lendio sometimes receives compensation for credit card offers. This compensation may impact how products appear on this site (including, for example, the order in which they appear.) Lendio does not include all card companies or all card offers available in the marketplace. This editorial is from the viewpoint of Lendio, and not endorsed by any 3rd party. The information is accurate at the time of publication.

*All information included in this article was current on its publication date (October 25, 2019) and is subject to change.

American Express recently announced the arrival of their newest business credit card, the Blue Business Cash Card. It’s the cash equivalent of the Blue Business Plus Credit Card, also by American Express. The difference is that the Blue Business Plus Credit Card earns membership points instead of cash back.

The Blue Business Cash Card was unveiled to replace the SimplyCash Plus Business Credit Card. There is little overlap in card specifications between the two cards, but there are quite a few differences. The biggest differences are the way earnings are structured and the interest rate. Most of the smaller details are identical between the two. Just like the SimplyCash Plus Card, the Blue Business Cash Card doesn’t have a welcome bonus, but it comes with no annual fee and expanded buying power. Some people may miss what the SimplyCash Business Credit Card was, but understanding what the Blue Business Cash Card is might win you over.

Cash Back Rewards

What it was: The SimplyCash Card received 5% cash back on up to $50,000 of combined purchases for wireless telephone services purchased from US service providers and purchases directly from US office supply stores. The first $50,000 spent on a select category of your choice earned 3% cash back, and all other purchases earned 1% cash back.

What it is: American Express opted to eliminate categorical earning on The Blue Business Cash Card and offer 2% cash back on up to $50,000 of spending on all purchases. After you reach the $50,000 cap, all earning is 1%. Like the SimplyCash Credit Card, cash back earned is automatically credited to your statement. 

The change in how cash back is earned is the most noticeable difference between the two cards. The switch will be disappointing for businesses that spend a high amount on wireless telephone services and their selected category. It appears that the shift to offer 2% on all purchases is a feature geared toward the masses, being intended for businesses that spend in a variety of categories.

Interest Rate

What it was: SimplyCash Plus offered an introductory APR of 0% for the first 15 months. After the introductory period, the variable APR was between 14.49% and 21.49% based on creditworthiness.

What it is: The Blue Business Cash Card offers an introductory APR of 0% for the first 12 months, with a variable APR of 13.24%-19.24%, based on creditworthiness.

The introduction period of 0% APR is shorter for the new card. Additionally, the minimum APR rate is slightly higher. However, a very small percentage of people are deemed worthy of the minimum rate on a credit card. So even though the minimum is slightly higher for the newer card, it won’t impact a vast majority of cardholders.

Beneficial for Most Small Businesses

The structure of earnings and the interest rate are the biggest differences between the cards. Most of the smaller details are identical between the two. Just like the SimplyCash Plus Card, the Blue Business Cash Card doesn’t have a welcome bonus, but it comes with no annual fee and expanded buying power. The retiring of the SimplyCash Card will be disappointing for business owners that spent a lot on wireless telephone services and office supplies, but the Blue Business Cash Card gives more consistent earning by offering 2% on every purchase, every time.

The American Express Blue Business Cash Card isn’t an ideal card for large businesses that easily surpass the $50,000 spending cap. This card’s benefits are optimal if your business spends close to $50,000 annually. When you spend $50,000, you will receive $1000 cash back to reinvest into your business. This card is best suited for small businesses with diverse spending that want consistent cash back with no annual fee.  

Lendio sometimes receives compensation for credit card offers. This compensation may impact how products appear on this site (including, for example, the order in which they appear.) Lendio does not include all card companies or all card offers available in the marketplace. This editorial is from the viewpoint of Lendio, and not endorsed by any 3rd party. The information is accurate at the time of publication.

Whether you call it freelancing, entrepreneurship, or hustling, there's no denying that the non-traditional work is more prevalent now than ever as more people turn side gigs into flourishing careers.

Independent contractors, who encompass everything from Uber drivers to freelance graphic designers, are taking the job market by storm. Over the first 15 years of the 2000s, 1099-MISC forms⁠—the tax forms issued to independent contractors⁠— increased by about 22%, while the number of W-2 forms⁠—tax forms issued to traditional employees⁠—decreased by 3.5%, according to George Mason University's Mercatus Center. 

Here's why today's economy is the perfect incubator for a nation of self-employed, side gig hustlers, whether we like it or not.

The Difference Between 1099 and W-2 Work

1099 and W-2 are two different forms used to report income to the IRS when filing taxes. A 1099 form is used by independent contractors, while a W-2 is used by full-time employees. However, the distinction between the two types of work is far greater than how taxes get paid.

Being a traditional W-2 employee means your taxes are taken out of your paycheck and you're provided with a list of benefits, ranging from healthcare to retirement contributions. Companies are required to pay W-2 employees a minimum wage, provide everything an employee needs to do their job, and reimburse most business expenses.

As a 1099 employee, you don't receive the same protections and benefits. You're responsible for filing your own taxes, covering business-related expenses, and obtaining the equipment and supplies needed to do your job, although these expenses can be written off on your taxes.

The Perks of the 1099 Lifestyle

If you're working as an independent contractor, your client can't dictate your work schedule or force you to come into the office or attend meetings on a full-time basis. Your job is to complete your work by the agreed-upon deadline, but how you get there is up to you. If you want to take a random Wednesday off or hire someone to help you complete your work, you can. If you need to spend a day working for a different client, you can do that as well. How you spend your time is none of their business.

As a W2 employee, your employer has a lot more leverage over you. They can tell you what hours to work, where to work, and how to complete your work, and they also have some power over what you do outside of work. For example, employers can preclude W-2 employees from doing other work on the side, running their own blogs, podcasts, and social media platforms, or even partaking in activities outside of work that make the company look bad.

Why Millennials and 1099 Work Are the Perfect Match

Millennials aren't the only generation participating in 1099 work. In fact, contract work has been around for decades in the form of farmworkers, construction workers, musicians, and more.

However, culturally speaking, younger generations are a large driving force in new labor trends. While often stereotyped as lazy and entitled, millennials are marked less by a lack of ambition and more by a shift in priorities away from superficial achievements and toward personal and collective fulfillment. According to Deloitte's 2019 Global Millennial Survey, the most common ambition amongst millennials is to see the world, and millennials as a whole are more interested in positively impacting their communities and the world than they are in having children and starting families. 

Pair this with a prevalent sense of skepticism toward business and a tendency to change jobs more frequently than previous generations, and it's easy to see why the freedom and self-direction of 1099 work might be attractive to this generation of folks born between 1981 and 1996.

Financial Crises and Technological Advancement at the Forefront of This New Economy

The technology is certainly here to support growth in the self-employment sector. Thanks to the internet, remote work is quickly becoming the norm. The ability to work for any company from anywhere in the world lends itself nicely to freelancing. Social media has given everyone the ability to create their own platform and profit from it. Sharing economy apps that allow anyone with a smartphone to partake in ridesharing, home-sharing, meal delivery, and more have also facilitated the growth of the gig economy.

There are other profound reasons that self-employment and the "gig economy" have caught on so rapidly in recent years. For one, events like September 11th and the 2008–2009 financial crisis shocked our nation, and along with impending crises like climate change and terrorism, have paved the way for a generation that feels very uncertain about the future. While the major benefit of full-time employment used to be a feeling of stability and security, no job is a sure thing in today's economy.

The Increase in 1099 Work Isn't Completely By Choice

While millennials might seem made for self-employment, not all young folks are happy participants in the gig economy. According to the Mercatus Center report, the most likely culprit for the increase in 1099 work isn't the increased availability of side gigs. Rather, side gigs have become more available because more people are demanding them⁠—often out of necessity.

The report explains that there's been a sharp decline in the job creation rate since the early 2000s, with the biggest drop taking place around the financial crisis. Pair difficulty finding traditional employment with stagnant wages, and it's not hard to understand why more folks are turning toward freelancing and side gigs to fill gaps of unemployment and underemployment. Previous decades proved that the single-earner household is no longer financially tenable for most families⁠. Perhaps what we're seeing now is that holding a single job is no longer financially tenable for most individuals.

Many industries have taken huge hits to business in the past couple of decades. In the search for bigger profit margins, firing W-2 employees and replacing them with 1099 contractors can be a huge help. Companies are no longer on the line for shelling out benefits and covering their half of payroll taxes. Businesses can also avoid paying salaries to a full staff during slow periods by using contractors and doling out work only when need it⁠—and the budget to pay for it.

1099 Work Can Lead to a Better Work-Life Balance

Because you're able to set your own rates as a contractor, 1099 workers who demand their worth often find they're able to make far more money freelancing than they ever could in traditional employment. Higher hourly rates also allow freelancers to make up for increased tax rates and having to cover their own health insurance and plan for retirement as a small business owner. Freelancers can demand higher rates because they're much cheaper for companies than a full-time employee.

Self-employed individuals also have the flexibility to pursue new opportunities as they wish, giving them full control over the direction of their careers. When it comes to personal fulfillment, the ability to set your own hours, and maybe even work remotely, is for many a priceless benefit that greatly outweighs 401(k) matching.

For folks who prefer the stability of working full-time or can't afford to surrender employer-sponsored benefits, the rise of 1099 work can be frustrating and scary. However, those with personalities and goals that align with self-employment can reap great benefits from this new economy. 

The information provided in this post does not, and is not intended to, constitute tax advice; instead, all information, content, and materials available in this post are for general informational purposes only. Readers of this post should contact their tax professional to obtain advice with respect to any particular tax matter.