Cutting costs and finding better business practices are critical for any construction contractor. One way you can do both is by taking actions to improve your business’ finances and thereby reduce your surety bond cost.
It’s not often you get the chance to kill two birds with one stone, so take a look at these 5 financial tips to help reduce your surety bond cost and get you started on saving money today!
Tip #1: Build Good Credit (From Day 1!)
This goes without saying, but let’s delve deeper into the idea that your credit is the main factor, which determines the rate you’ll pay to get bonded. So, besides all the other reasons to build good credit, it will make a big difference for your surety bond, as well. But what steps can you take to improve your financial standing?
The first is to be aware of your credit score and what could be dragging it down. You can check your credit without affecting your score, and even set up credit monitoring with free services like Credit Karma, Identity Guard, or LifeLock. This can help you avoid one of the most common destroyers of credit: identity theft.
Other critical aspects of building good credit are paying bills on time, using credit cards and loans responsibly, and building credit history from as early as possible.
But good credit takes time to cultivate. The good news is that even if your credit isn’t perfect, there are still things you can do to reduce your surety bond cost.
Tip #2: Pay Outstanding Duties and Tax Liens
Having outstanding payments or especially tax liens can put a serious dent in your credit score and increase the cost of your surety bond. But while paying these off won’t instantly change your credit score, it can have an immediate effect on your bond rate.
So pay off what you can and provide documentation when you’re applying for your surety bond. While you’re at it, there are other important documents, which you can submit to get a better rate; check them out in Tip #3.
Tip #3: Track What You’re Owed
When you apply for a surety bond, you have to hand over financial statements as part of the process. But these statements leave out some critical information, like the money you may be owed by clients (i.e., your accounts receivable). But fortunately, there’s an easy fix!
You can collect documentation about what you’re owed and present it as part of your bond application. This information is too often left out, but giving the bonding agency a fuller picture of your finances can make a real difference in the end. Before you bring in all these documents, though, you’ve got to find the right surety bond agency.
Tip #4: Find a Surety Bond Agency with a Large Pool of Sureties
When looking around for the right place to find a surety bond, you want to look for agencies with more sureties. Why? Because more sureties means more options and a better chance of getting bonded at the best possible rate.
This is because the bonding agency will have a huge pool to look at to find you the best deal possible. So, even if you’re worried about your credit score, you’ve got a much better chance at (a) getting bonded and (b) getting an affordable rate, if you’re working with an agency with a large number of relationships with many surety companies.
In addition, these kinds of surety bond agencies tend to have more resources available to help you with issues like avoiding claims and understanding how surety bonds work.
Tip #5: Avoid Claims!
True, the reason you’re required to have a surety bond is so anyone making a claim against you can be paid, but that doesn’t mean you should let it happen. In fact, making sure any problems with customers never get to the claims stage is critical to keeping your surety bond premium as low as possible.
How do you avoid claims? In short, make sure you fulfill all contracts and other legal requirements for your customers. If you never violate any legal obligations, there’s no reason for anyone to file a claim and your surety bond costs should stay nice and low.
If there’s still the threat of a claim, make sure it gets settled before the official claim is filed. Having a claim filed against you can mean that surety bond agencies will refuse to renew your bond outright, which means you’re out of business. Do your best to resolve issues as they arise by getting in touch with the parties threatening to file a claim to work everything out ahead of time.
Start With the Right Attitude
For construction contractors it all comes down to treating your surety bond like any other business cost: if you understand how it works, you can take the right actions to keep it low. That means maintaining good credit and making sure you follow the rules of your bond. Follow these tips and you’ll be sure to enjoy the lowest possible rate.
How have you managed to keep your credit score high and your surety bond rate low? Let us know what has (and hasn’t) worked for you in the comment section.