Having a good business credit score is vital for keeping your business afloat, so building a better business score should be at the forefront of your priorities.
It increases the likelihood of gaining access to additional funding; whether it be in the form of mortgages, credit, or loans. More importantly it increases your chances of gaining larger contracts with big suppliers and landing bigger customers- the better your business credit score, the more credit you are trusted to obtain. Being able to prove you are financially stable has never been more important with businesses being ever more diligent with who they do business with in a bid to minimise bad debt levels and mitigate risk. Before starting to engage in negotiations with a new supplier or customer, it is important to understand your existing credit score. The easiest way to do this is to assess your company credit report as this will hold all the information you need.
If you have been refused trade credit or are just interested in improving your credit score then below are our top 5 tips to building a better business credit score!
1. Improve the transparency of the financial data you make available
The more information that is available about you, the more accurate your score is likely to be. Micro entities and abbreviated accounts don’t tell the whole story about your business. Even if you are not legally obliged to report full accounts, it is always a good idea to do so as the more data you provide, the more data Credit Reference Agencies (CRA’s) have to base their credit score decision on.
Also ensure all your information is correct, mistakes on company credit reports can dent your over-all business score and will need to be corrected. If you have an accountant to file your accounts or if you file them yourself, ensure the full accounts are being filed and all information is correct.
2. Pay your bills regularly and on time
Cashflow is always a concern for any business however paying bills late in order to save cashflow will have a negative effect on your credit score. Businesses who are showing a pattern of paying their bills later and later every month are showing a strong signal that they are in financial trouble and have an increasingly high likelihood of default. Most CRA’s build third party payment data into their models so late payments are much more likely to have a negative impact on your credit score. If you haven’t done so already, consider restructuring your payments so they are made by regular direct debit or BACS.
3. Satisfy any County Court Judgments (CCJs)
Avoiding being issued a CCJ is vital when trying to boost your business credit score. Following on from paying your bills on time above, ensure any mail you have forwarded or any contact details listed for your business are up to date. If the courts are trying to get in touch with you regarding a CCJ, make sure they are able to reach you. If they fail to make contact with you, the judgment will still go ahead regardless of whether you have answered the courts or not.
If you do receive a CCJ for whatever reason, pay it immediately. If you pay or settle a CCJ within 1 month of issue, the Judgment will be removed from your record and will no longer impact your credit score. If the Judgment is issued and paid outside of 30 days then it will be marked as ‘satisfied’ and will remain on your record for 6 years however not all CRA’s will take this into account when scoring your business.
4. Create a uniformed acceptance policy for customer and supplier due diligence
To protect your own credit score, you need to ensure that you don’t deal with customers and suppliers who don’t have the funds to keep their business afloat. Even if you have long-term relationships with customers and have had no problems with them in the past, circumstances can quickly change. Carry out regular due diligence on your whole customer base and monitor your payments coming in.
Create a uniformed acceptance policy across your business for all departments. Whether you’re working on sales, finance or customer management; you’re not allowing customers who don’t meet your criteria to have credit from your business. Set the criteria and ensure all teams follow it, this should help mitigate risk from bad payers.
You can make this easier in your business with integrated data, ensuring everyone has real-time, up to date and consistent information to make the best informed decisions they are able to. Creditsafe Connect can be integrated into your systems for your whole business, making the process of carrying out due diligence seamless.
5. Ensure your customers pay on time and chase when necessary
Late payments are rife in British business culture, and can have a damaging effect on businesses and their cash flow. If your cash flow drops, so will your business credit score. You can better manage your customers’ outstanding payments with 3D Ledger. It helps you to prioritise your payments based on how long they have been outstanding for and the amount of cash outstanding. 3D Ledger helps you work out which late payments your team should be focusing on, ensuring you aren’t wasting time on chasing a £10 invoice when a £10,000 invoice is also overdue.