Most people are familiar with personal credit scores, but did you know that credit reference agencies also hold information on your business? This can be used by lenders to check on your company when you take out credit.
Understanding the importance of your company credit file can enable you to improve your credit score. It’s also beneficial for understanding how you can check new customers to manage the company cash flow better.
What is a business credit score?
A business credit score works in exactly the same way as a personal one. It details the financial history of a limited company, including the late payment of commercial debts and County Court Judgements.
This information is used by lenders when your business applies for credit. This includes business bank accounts, loans, mobile phone contracts and account facilities with suppliers.
A poor business credit score can seriously hamper your company’s ability to grow. It will limit the amount of credit and the types of rates offered.
Where a company has a good credit score you will be more successful when applying for financial products. It opens up more lucrative interest rates and payment terms, improving the business’ cash flow and financial viability.
How do credit reference agencies calculate credit scores?
Each credit reference agency has their own method for calculating the credit rating of businesses. There a number of elements that most use to work out a credit score.
This includes getting information from debt collection services on businesses who don’t pay their bills on time. They will also use details from banks and government departments about a company. Suppliers can report a business to a credit reference agency where they’re not paying promptly.
Whichever way a credit score is calculated, the higher your rating the better it is.
How to improve your business credit score?
If you’ve got a bad payment history or not used credit, there are ways to improve your credit rating.
The first step is to check your business credit score. The main credit reference agencies have online subscription services that you can sign up to. If any of the information they hold on your business is incorrect then you can request they change it. It’s good practice to review this about three times a year to ensure there are no mistakes.
Make sure that you have a business bank account in the name of the company. Having some credit for the business, such as a credit card or overdraft facility, can improve your rating. However, it’s important that you can meet the repayments, pay bills on time and don’t reach your credit limit.
Keep your accounts up to date on Companies House and ensure everything is filed on time.
Close any accounts that you don’t use, as having a lot of available credit can lower your rating.
Be careful about how many credit applications you make. When you’ve been rejected from one lender don’t keep applying for others, as this can have a negative impact.
Having a good accounting system and healthy cash flow will make it easier to pay your bills on time. Where your own customers are paying invoices late, it’s crucial that you start the commercial debt recovery process promptly, to prevent this impacting on your ability to pay.
At CEA Ltd we support clients with a range of commercial debt collection issues – from outsourcing their credit control through to chasing unpaid invoices and enforcing court judgements. Contact us today to see how we can support your company and improve your cash flow.