How to check and improve your company credit report
Running a business can be both emotionally and financially challenging. When the finances run out , you start to think about various other options to bring funds into the company for its growth.
When considering funding it is very important that your Company’s credit score is in line with the funding requirements. Most if not all financial institutions will do a regular check on your Company’s credit score to ensure that if they have loaned money to help the company’s cashflow that you can repay that loan and that there are no legal actions amongst other things on our credit score.
The better your company’s credit scores the better your chances are to borrow money.
Just picture this, you’re a supplier, and a new customer approaches you. You run a credit check, and their score comes back as ‘high risk’ – they could have bad credit for several reasons – alarm bells might start ringing in your head. Would you be willing to take a risk by supplying this business? Will they pay you on time? Will you ever receive payment?
Bad credit can easily affect supplier and shareholder relationships. So, the more you try to improve your business credit score, the more positive the outcome will be for you and your business later down the line.
Business credit score
A business credit score is the measure of a business’s creditworthiness, which is made up of several factors, including payment history and debt, to understand the financial position of a company and its level of financial risk. The score generally ranges from 0 to 100, with 0 representing a high risk and 100 representing a low risk.
Business credit scores and risk bands
Business credit reference agencies (CRAs) will use different scoring models and criteria to measure risk. For example, Experian uses its unique credit rating algorithm named the ‘Commercial Delphi Score’ to calculate a business’s creditworthiness. This means that it is not uncommon for scores to vary slightly between different credit reference agencies.
This is how the risk bands are calculated.
| Business Credit Score | Risk Band |
| 0 | Failed company |
| 1 | Imminently failing company |
| 2-15 | Maximum risk |
| 16-25 | High risk |
| 26-50 | Above-average risk |
| 51-80 | Below-average risk |
| 81-90 | Low risk |
| 91-100 | Very low risk |
Your company should always be aiming to be 100 as much as possible BUT that doesn’t happen in normal circumstances.
How to check your business credit score
There are various providers of credit score providers online. Some charge a fee and others provide the first one free with a monthly subscription.
Here is a list of some of the online agencies. There a few more but I have listed what I feel are the top there which we use.
Experian
Equifax
Creditsafe
Improving your business credit score
Make payments in a timely manner
Missing payments or making payments late is a sure-fire way to damage your business credit score. If you’re not in charge of the payments in your own company, you need to sit with whoever makes the payments and reassess their process.
At the end of the day, the late payments won’t personally affect the finance manager in your company – it’s only going to affect the business’s credit score. You need to ensure strict and robust payment processes are in place so you can start paying your bills on time.
On the other hand, if it is you who is in charge of paying invoices and you’re struggling to keep on top of all the paperwork – maybe you should consider hiring an assistant to help you with your admin processes.
Either way, you need to make paying invoices a priority. No excuses.
2. Keep an eye on your personal finances
If you’re a sole trader, there is nothing to separate your business finances from your personal finances legally. Therefore, it’s essential to keep an eye on your personal financial situation.
If you have a poor personal credit score, this can be considered when applying for business funding. If your business has not built up a good credit rating, then lenders will only have your personal finances to rely on as a blueprint for how you handle money and pay your lenders.
3. Check your credit score monthly
Checking your company’s rating every month means there are no surprises when you apply for credit. You can also sign up to receive alerts, so you are notified every time someone runs a credit check on your company or something changes with your credit score.
Keeping yourself informed means you’re never in the dark when it comes to your business credit score.
4. Limit the number of credit applications you make
When you submit any credit application, you run the risk of the company running a credit check on your business. Every time a credit check is processed, it is filed and kept on your business account. If many credit checks are carried out in a short space of time, this can look as though you’re struggling to secure finance – which is not a good indication of suitability for potential lenders.
5. Communicate with suppliers
Although the ideal scenario would be that you pay all your invoices on time – cash flow issues are common in business. It is estimated that approximately 80% of companies fail due to cash flow issues! As this is such a common occurrence in companies across the world – sometimes communicating with your suppliers and sharing the reasons why payment will be late can help you keep them from reporting you to a credit scoring company. Make sure you outline precisely when they can expect payment – and try to make it a one-off.
Communication is critical with these issues; you need to swallow your pride and be upfront about your predicament.
6. Try and fix cash flow issues
Working with an accountant on these issues is a good idea if you can afford their help. Sometimes as the business owner, you can’t see the wood for the trees – and that’s ok, you might need an unbiased party to tell you where you’re going wrong.
If you can’t afford an accountant in the infancy of your business – look at changing the payment terms you set out for clients. Is there any chance you can ask for part payment upfront, or shorten the payment window? Getting a new customer or client on board is exciting but then realising you’re not getting paid until 90 days have passed – is disheartening.
If you’ve got cash flow issues because of slow-paying clients, consider cutting ties with them. Although saying ‘no’ to money is hard, you’ll thank your future self when your business credit score stays intact!
7. Consider Investing in invoicing software
Keeping a good business credit score, in principle, is simple – pay invoices on time, get paid on time and don’t borrow over your limits. But in reality – we know it can be challenging to get paid on time – which, consequently, has a knock-on effect to paying invoices on time!
To help you get organised when it comes to your finances, it could be a good idea for you to invest in an invoicing system. Although anything with the words ‘software’; or ‘system’; attached to them might sound expensive – there are plenty of cost-effective options on the market. Have a look at Xero , Sage and Quickbooks.
An invoicing system can help take unnecessary admin away – admin tasks can drain your time as a business owner, time that could be spent securing new customers and clients! Remembering to send out invoices can make the mind boggle – particularly if you don’t have an admin assistant or office manager to oversee the process.
Invoicing software can automate invoicing, chase clients for payment automatically and help you keep a clear head when it comes to your finances. Logging into a dashboard that tells you how much you’ve made, outlines your expenditure and highlights what you’re still owed and by whom – is helpful to any business owner.
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