Business tips: Improving your credit score

Your company’s credit score is important. To be able to borrow from lenders, or negotiate trade credit with your suppliers, your business needs to prove that it’s a low-risk business to lend to.

The major credit agencies will give your business a score, based on its creditworthiness. This score takes into account things like your credit history, your debt profile and the industry you work in. The rate you’re given can have a significant impact on your ability to borrow money, so it’s sensible to review your credit score and to take action to improve it.

What can you do to bump up that credit score?

1. Check your SIC code

Your Standard Industry Classification (SIC) code tells the relevant regulatory bodies what industry or sector you trade in. Certain sectors are higher risk than others, so if your SIC code is incorrect, you could inadvertently be bringing down your credit score.

Check the SIC code you’re registered with and make sure it properly reflects the sector you work in. It’s better to be as specific as possible. By narrowing down your industry classification, you give the credit agencies more information about your business and your risk level.

2. Improve your payment performance

Paying your creditors on time, and in full, creates a good payment history. The credit agencies will look at how long it takes you to pay your suppliers and main providers. If you’re consistently late in paying, that sets a bad precedent and will bump up your risk in the agencies’ eyes.

Run a tight accounts payable function and make sure you pay all bills on (or before) the invoice due date. Pay on time, keep your creditors happy and you’ll build up a payment history that sets you out as creditworthy.

3. Don’t apply for multiple credit facilities

When cash is in short supply, the temptation is to borrow as much money as you can. But if you apply to multiple lenders for credit facilities, this is bad news for your credit score.

Credit agencies won’t look favourably on your need to borrow from multiple sources. In a best case scenario, it shows that you don’t currently have enough liquid cash in the business. In a worst-case scenario, it demonstrates that you’re badly organised, poor with managing cashflow and have rising debt in the business.

Consolidate your debt needs into one finance facility, where possible, and deal with one lender. And try to keep your borrowing to a sensible and manageable level.

4. File the right accounts

In some circumstances, it’s possible to file filleted accounts. This meets the compliance requirement, but doesn’t give the agencies enough detail on your current financial position. And with little to no information to work with, your perceived risk level is likely to increase.

Make sure you’re filing full accounts that give the agencies a complete overview of your finances. And ensure you file these accounts on time, so you don’t incur any late penalties and give an impression of sloppy financial management.

5. Avoid any red flags against the company or your directors

Credit agencies are looking for evidence that you’re creditworthy, low risk and that your people are ‘fit and proper’. Any history of insolvency will act as a red flag and will have a negative impact on the company’s credit rating.

If you or your fellow directors have had any previous insolvencies, or have things like County Court Judgements (CCJs) against you, this will affect your credit score. You can’t change the past, but you can make sure you build up a good credit profile and reputation to counteract any of these red flags.

For example:

• Pay on time, every time
• Manage your cash well
• Don’t build up unsustainable debt in the business

Meeting these simple goals will have a positive impact on your credit score – and that’s good news for the financial future of your business and your growth plans.

If you want to get in control of your credit score, please do get in touch. We’ll help you review your credit position and look for possible ways to improve your ratings with the agencies.