By Chris Robertson, UK CEO, CreditsafeWhile the term ‘credit score’ is prevalent in a contemporary business owner’s vocabulary, metrics behind the figure itself, and the implications of the score, are often not understood as well as they should be. SMEs typically understand they need to have a higher number, but not what elements can affect this.
A business credit score takes into account a number of company financial KPIs including how prompt a business is in paying suppliers. The way this data is interpreted can vary around the world but in the UK the figures are calculated on a scale of 1 to 100, and is the most commonly used metric by businesses and lenders to check a business’s chances of success. This is because it can analyse their probability of becoming insolvent before buying into business relationships.
If you are an SME you should aim for a score of 50+ as this will showcase that you are a ‘low risk’ business and will encourage safe investment from external parties. If you are being compared to another business for a new trade agreement, in most cases the organisation with a better credit score is going to succeed due to the trust that this indicates.
By not improving and maintaining your credit score you are putting yourself at a disadvantage even before potential investors scrutinise your financial figures and business plans. A higher credit score will maximise your credibility, so if your business’s is not as high as you need it to be, there are certain things you can do.
Pay on timeTo avoid your business being viewed as a debt risk, you need to ensure everything that needs paying is paid, and on time. This is the easiest and simplest thing you can do to improve your business credit score.
While this will positively affect your score over time, if you do occasionally pay late or miss payments to your trade credit account, expect your other efforts to be negated.
Review what’s been reportedThis is a method that can take time, through investigations and by manually removing errors on your company’s file. If you review your business’s reports and see that an organisation has incorrectly filed negative feedback against your business, you can dispute this.
As a method of improving your credit score, it’s never a certainty as there is usually a reason these notes are on your file, but there may be room for you to remove any errors.
Use relationships for credit accountsIf you have good business relationships with key organisations across your supply chain, consider opening credit accounts with them to help prove your payment habits.
This will prove to creditors that you are a prompt payer and are already trusted with existing business relationships. It’s an easy win and can strengthen business relationships with those you are already working with.
Be open and honestBy this, we mean it is in your interest to share information with credit reference companies. This helps to ensure the data being shared about you is not only up to date but truthful. It can also be a good tactic to get businesses you work with to share their information too, as a way to ensure credit reference companies are seeing the entire picture.
Consider this tactic working alongside disputes, and you are then presenting the most accurate and reputable information about your business. This can be beneficial as other businesses assess you to decide if they wish to start a conversation with you or not.
Don’t live in a credit bubbleThere is nothing wrong with checking in on suppliers and businesses you deal with. If you notice a key supplier is struggling financially, you may need to make some trade decisions to ensure you are not then affected due to their misfortune. This will indirectly affect your credit score as you will be able to limit any damage caused to your business.
Things to remember about credit scores• They’re updated millions of times every day, so don’t presume the data is outdated
• There is no credit blacklist but a score will reflect negative credit records
• Only 12 per cent of companies in the UK have scores above 90, so it is not an achievable goal to aim for this