Ben Buckton

Shining a light on your business credit score

Taking the time to understand your business credit score, how the credit scoring process works and the impact it can have on your business could be the key to unlocking essential financial opportunities. Yet Experian research found that that nearly two in five (37%) of SME organisations don’t know their own business credit score, potentially limiting their chances of securing the finance your business needs to grow and become more productive.

The business credit score of an organisation is an indicator of its financial health. Credit scores form a critical part of the decision-making process for financial and commercial lenders, service providers and suppliers; in short, it determines whether you get to extend your credit facility, to help fund the growth of your company, or not. A poor credit score can impact your ability to secure additional funds or get the best deals from a supplier to better control overheads.

But, as important as it is to check your own business credit score, keeping tabs on any new client’s credit score is just as important, giving you comfort they’ll be able to pay you when they say they will. Naturally, any business will be reliant on money coming in, but if you’ve been let down by a customer not paying you, this could have damaging effects on your ability to pay your creditors, impacting your own business credit score and ability to secure future credit.

With this in mind, it’s surprising to see that only 47% of SMEs surveyed in Experian’s research credit check all their new clients before working with them – 31% of them saying ‘it’s not one of their standard procedure’ and 9% saying ‘it’s not a priority task’. The situation is problematic – a lack of insight can leave SMEs to operate in the dark. In the long term this can impact on their financial reputation, cash flow, and business growth. Yet, the problem can be easily rectified by putting a few simple processes into place.

Here are some useful tips for SMEs to consider:

Check your credit score regularly

Credit scores should be checked regularly – at least every six months – and if it’s looking bad, a plan should be put in place to improve it.

Know what impacts your 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 (CCJ) can damage 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.

Improve your score by paying your invoices on time, as a worsening payment trend is a key indicator of a deteriorating cash position. Know the deadline date to submit your company’s annual return by, as late filing can be a sign of financial distress. And, remember to tell your utility suppliers when you move premises and pay utility bills in full as outstanding bills can go against your records.

Make credit checking part of your company’s protocol

Credit checking should be engrained into your company’s code of conduct. Code Print, a Nottingham-based small print-management and promotional-gift business, does this. “I see it as an insurance policy”, comments Phil Simpson, Managing Director of Code Print who has used credit checking products since the company’s first day of trading. It forms an essential part of his ‘toolkit’ in operating the commercial aspects of the business. Run a status check on new customers and suppliers

When dealing with a new customer or supplier, run a status check as four out of ten registered businesses never go on to trade at all. Make sure you are dealing with a real business by confirming the address and building the company is trading at, and call the phone number that is registered to the company. If in doubt, ask for a reference from another company.

Run a credit check on new customers and suppliers

Run a credit check on any potential customer, supplier or partner. Only a third (34 per cent) of SMEs run a credit check on new business customers, and just under a half (45 per cent) run a credit check on new suppliers. To avoid the risk of financial exposure, check out a company’s commercial credit score, their credit status, trading history, and their ability to pay bills in time.

Keep monitoring customers and suppliers

Even if a customer or supplier has previously proven themselves reliable by paying or delivering on time, keep monitoring their credit performance, to mitigate risk. Phil Simpson, Codeprint, comments: “Suppliers are a key element of our business so knowing if one of them could go ‘pop’ at any moment means that I can safeguard our business and manage customer expectations quickly, either by negotiating terms upfront or changing supplier in the worst case scenario”.

Operating home and away? Be consistent

And finally, when trading internationally, put the same checks in place as you would in your home country. Set up access to an international credit report, learn about a company’s credit history, and set appropriate payment terms and credit limits.

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