Getting to know your business credit score

business credit check

If you’re not sure how your business credit score may be affecting your organisation, you’re not alone.

Ben Buckton at Experian explains that recent research the carried out revealed almost a fifth of small business owners admitted that they felt they had an insufficient understanding of business credit scores.

For that reason, many small businesses are harming their chances of gaining access to credit, getting better deals from suppliers, and securing additional funding to help grow their business.

When looking to extend a company’s credit facility, a business credit score forms a key part of the decision-making process for financial and commercial lenders, service providers and suppliers.  So, here are some tips on how to improve your credit score:

Tip 1: Be aware of what impacts your credit score

Knowing what impacts and helps your credit score is vital. Bankruptcy, numerous applications for credit accounts in a short time period, and County Court Judgments can harm your score. Prompt payment to suppliers, filing annual accounts, and registering your business with a credit reference agency or directory, all have a positive impact on your credit score.

If you are a company director keep an eye on your own personal finances; if financial data on a business is limited, the data available on you as a consumer can be taken as an indicator of risk.

And, busting some myths – as a business having a healthy business account bank balance, paying bills before the due date, taking on more employees, moving into bigger premises, using an overdraft, making employees redundant, and applying for an overdraft, does not impact your commercial credit score.

Tip 2: Regularly check your credit score

You don’t ignore your revenue and overhead numbers, so don’t ignore your credit score.  Access to affordable credit can help you to increase revenues and better manage overheads, so make sure there’s a place for your credit score on your company reports.

Make it a habit to check your credit score regularly – at least once every six months – and if it needs some work, don’t ignore it, but put a plan in place to improve it. Two simple ways to improve your score are to pay your invoices on time, asa worsening payment trend is a key indicator of a deteriorating cash position; and know the deadline date to submit your company’s annual return by, as late filing can be a sign of financial distress.

Tip 3: Don’t expose yourself to risk – check the credit score of your customers and suppliers

Protect your revenue flow by running credit score reports on your customers to ensure they can pay you for your services. Minimise your commercial exposure by running credit score reports on suppliers to confirm their ability to deliver you a service.  Credit checking is like a form of business insurance.

Always establish you are dealing with a real business – beyond telephone and email correspondence, check out the customer/ supplier’s address to ensure they are who they say they are, and to confirm trading status. Credit reports will allow you to: check their credit status and trading history; get an indication of their trading future; and clarify their ability and inclination to pay bills on time.  Like your own credit score – keep monitoring the credit status of your customers and suppliers, so you can take appropriate steps if circumstances change.

Tip 4: The same rules apply internationally as they do at home – have a credit score process in place

If you trade internationally, or are planning to, check the credit scores of overseas suppliers and customers just as you would in the UK to reduce your exposure to risk. Set up access to an international credit report, so you can learn about a company’s credit history, and set appropriate payment terms and credit limits for customers. Give customers a range of payment options, but do this to ensure the business payment terms are met, rather than to give customers an excuse to delay.

There’s no denying it, running your own business can be a tricky affair but it’s those businesses that take the time to get to know both their own and their customer’s credit scores, that’ll set-in motion a foundation that will set your business up for long term success.