The importance of a company’s reputation when investing in it

A company’s reputation can be a determining factor in an investor’s decision-making

Reputation is an intangible asset of great value for individuals and companies. As far back as Classical Antiquity, Hesiod stated that a bad reputation »is a burden, light to lift, heavy to carry, difficult to unload». A good reputation, on the other hand, is the result of a job well done, of the effort and worth of the person who has it. And the benefits of a good reputation are invaluable.

This is why a company’s reputation is relevant when obtaining financing. Or, seen from the investors’ point of view, it is a vitally important element when designing investment strategies and deciding which companies to invest in the available economic resources and in which not to invest.

Beyond tangible and objective data such as a company’s accounts and financial results and other relevant indicators (for example, the size of its workforce), investors consider a company’s reputation when investing in it.

Just as in everyday life, we are more inclined to trust a person we know and have good references for. In the financial sphere, it is easier to bet on a business project that we know and have a favorable opinion of than on a business that is unknown to us, even when the profitability and risk conditions are better in the second case than in the first.

Today we will analyze the importance of a company’s reputation in the financial field in general and alternative financing in particular.

Risk, profitability… and a company’s reputation?

When we evaluate a potential investment, we take into account, first and foremost, the two classic Rs, the operation’s risk and profitability. In both aspects, the credit rating comes into play. If the rating is low, the bet will be higher. And, indeed, the profitability, or the money we will obtain in exchange for investing, will also be higher.

The famous saying «good, nice, and cheap» could be translated to the investment arena with «low risk, high return».

However, these two factors, which remain crucial, are complemented by others, such as a company’s reputation, especially when it comes to alternative financing. Why? In online alternative financing modalities such as crowdfactoring or crowdlending, the investor can get to know the companies where he invests his money very precisely.

A person would buy an invoice to be paid by a company he knows rather than from a business he has never heard of. Even if its credit rating is better or the transaction offers a higher return.

This is because a company’s reputation is essential. It matters when it comes to consuming its products or contracting its services. It is also crucial when it comes to making investment decisions.

A company’s reputation is its best letter of introduction and the best asset it has to initiate a relationship of trust with its customers or investors.

Drawees also have a reputation

In the case of crowdfactoring, three players must be considered: the investors, the ceding companies seeking to obtain financing, and the drawee companies, i.e., those that have to pay the invoices.

This implies that investors can take into account both the reputation of a company they are going to finance and the importance of the company that has to pay back their investment.

Investors may be reluctant to purchase invoices offered by a ceding company with a poor public image. Or they wish to refrain from investing their money in invoices paid by a drawee company with a dubious reputation.

Here, financial reputation plays a key role. In other words, the financial health of the companies involved in the transaction.

For this reason, Inversa Invoice Market scientifically analyzes financial health through the rating of the company’s credit quality and its track record when it comes to paying invoices.

But there is no doubt that the investor’s perception and the information available also play a vital role. Imagine, for example, that the potential investor has read that the company due to pay an invoice in which he wishes to invest has undertaken layoffs in recent months. Even though the credit rating is good and, therefore, the risk of the operation could be higher, the investor will not be receptive and will prefer to buy another invoice, even if it offers a lower return.

A company's reputation can make it easier for it to access the finance it needs

A company’s reputation beyond its economic success: Corporate social responsibility

Today, a company’s reputation is not measured solely and exclusively in economic terms or terms of the success of its business model.

For many investors, more is needed for a company to make a profit, create jobs, offer quality products and services, and have a strong market presence. Investors also demand that a company’s reputation be based on elements such as corporate social responsibility or ESG (environmental, social, and governance) criteria.

Thus, the reputation of a successful business can be harmed if its processes damage the environment. On the other hand, a company that does not make excessive profits can earn a solid reputation for its level of sustainability or its social commitment.

As a company’s reputation is an intangible value, it is impossible to quantify it or design an exact formula to understand how it has been built.

Many factors come into play when it comes to building a good reputation. And, as if this were not enough, these factors mutate over time, depending on the concerns and objectives prevailing in society and the economic system.

Therefore, companies must position their reputation as an asset that requires a unique and ambitious strategy to take care of it as it deserves.

Building a reputation among investors

Companies and freelancers with a long track record are likelier to have a solid reputation for building trust with investors.

However, companies that have been in business for less time can still build a reputation and attract investment.

Indeed, the ability of a business project to finance itself is crucial in the early stages of its life cycle. So building a good reputation among investors can bring significant added value.

Fortunately or unfortunately, human beings are creatures of habit. Suppose a new company uploads its invoices to a crowdfactoring platform such as Inversa Invoice Market. In that case, it will initially only attract investors because of the profitability conditions it offers and its credit rating.

However, once it has already earned a reputation among investors for offering transaction security, it will have built a reputation.

And that reputation will help increase the number of people who choose to provide you with liquidity. This will make it easier for you to finance yourself and increase your chances of growth.

Consolidating brand image beyond the financial sphere

Earlier, we saw how a company’s reputation impacts its ability to raise finance. However, the company’s brand image can also be consolidated through financing.

After all, investors who have bet on a successful company will speak well of it, helping its reputation to grow.

Thus, a company’s reputation is an essential factor in financing and investment, as well as its position in the market.

A company with a good reputation can finance itself more efficiently. And a company that has earned the respect and trust of investors will enjoy a better reputation in society and the economic system as a whole.

Companies are made up of a large number of assets, from their employees to their products and, of course, their customers. And reputation is one of them.

A good reputation can propel a company to success. A bad reputation, on the other hand, can hinder its access to financing and marketing its products or services.

If you are going to invest your money, who would you instead invest it in a company you know and know you can trust or a business about which you have no information?

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