Your company’s credit score is important – it will affect how much credit your can get, and it can make the difference between another business choosing you or someone else with whom to do business. So improving your score can only be a good thing!
There are a number of credit reference agencies (e.g. Experian, Equifax, Dun and Bradstreet), who use various sources of information to produce your score in different ways. Credit scoring is about trying to predict the future, from your past financial behaviour.
Although calculated differently, the score will give an indication of whether your credit risk is good, bad or ugly.
Here are three ways to improve your score for your small business…
Number One – check your score
The first thing to do is check your company’s report – you need to know what your score is, so that you can start to improve it. You also need to know your score, because other people will be checking it to figure out if they want to do business with you – so you should know what information they are seeing about your company.
We can help you with this – you can find your company’s details on our site – CreditHQ – and see your company profile page, which shows your company’s financial information, credit indicator, payment indicator and credit events – so check it – it’s free to sign up!
Credit agencies do make mistakes, so check all your details (address, financial information, credit events, dates etc.).
These details either come from Companies House or the credit reference agency, so dispute anything that you think is incorrect or unfair.
Number Two – pay on time
Time is money – make sure you do things on time! This will massively help your score.
Pay your bills on time – set up reminders, set up automatic emails, set up direct debits or standing orders, so they get paid automatically. Paying even the minimum amount by direct debit for loan repayments or credit card bills will mean that you never miss a payment. You can then top it up each month for the extra amount.
If you are having difficulties, then contact the lender or the payee – changing your payment schedule is preferable to defaulting, and has less impact on your credit score than a county court judgment or decree against you.
Negotiate longer payment terms up front to give yourself extra time to pay.
File your accounts on time – or better still, before the deadline, as it can take extra time for processing. If your accounts tell a good story, then file a full set of accounts, rather than abbreviated accounts.
Number Three – manage your cash flow
Get paid on time – chase the money that is owed to you – set up automatic emails to remind suppliers that invoices are nearly due, and then chase them if they don’t get paid. If you still don’t get paid after the due date, then sending a ‘letter before action’ can make a huge difference – we can help you with letter templates, and debt collect agencies.
Check when a company is likely to pay you – you can sign up for free on our site to find out how long a company is likely to pay you beyond the average payment terms. If the average payment terms are 30 days, many big companies pay up to 100 days late – if you know this already, you can plan for it in your cash flow.
Minimise your debt – if other companies see a lot of debt on your balance sheet then they are less likely to extend credit, as you pose a greater risk to them. Credit agencies will take into account the difference between your current assets and liabilities, and what’s coming in and going out of your business. So maximize your working capital and minimize your debts.
A couple of extra tips…
It’s important to build up as much positive history as possible (which is tough when you’re a new business), but simple things can make a difference, such as if you have a positive credit history with a business credit card, don’t close the account even if you don’t use it anymore.
Every time you apply for a credit product (be it a credit card, contract mobile phone, car insurance), it adds a footprint to your file. If you have too many applications, particularly in a short space of time, it can trigger rejections as it makes it look like you’re in need of credit. Space out applications if you can, and only apply for the things you really need.
Good luck with improving your score, and remember we can help – so please do take a look at our site… and keep reading our blog!