Your business credit score is based on your business’s financial history. Lenders will use it alongside the directors’ personal credit scores to decide whether your business is likely to repay debt.
However, in addition to lenders, trade suppliers will use a credit report on your business to assess how much free trade credit they will provide, which can be vital in supporting your business’s working capital cycle - it is easy to forget how important this source of finance can be.
How do credit reference agencies work?
Credit reference agencies use multiple data sources to build up a picture of how creditworthy a business might be. Typically, heavy reliance is placed on:
• Companies House information (length of trading, whether you meet filing deadlines, trends in financial accounts – with the most important one being a business’s balance sheet strength noting that most business only file “abbreviated accounts”)
• Payment performance information (have you paid invoices on time, have you repaid finance on time?)
• Public information (county court judgements, any company notices in the Gazette)
How to build your business’s credit score
Here are my tips on how to make sure your business’s credit score is as good at it should be:
Check your business’s credit rating for free with an organisation like Creditsafe. Make sure the information is correct and that there isn’t any adverse information that you’re unaware of.
File your accounts and annual return with Companies House on time - it’s a red flag if you don’t. If your latest accounts are stronger than your previous year then ask your accountant to produce the latest version as soon as possible after the year end and get them filed immediately.
Try and show a growing balance sheet on your annual accounts. A declining balance sheet weakens your credit rating. Ideally this should be from producing real retained profits – it’s better for your credit rating to show and retain good profits than engage in lots of tax planning to depress the bottom line. In addition, balance sheets can increase if assets on the balance sheet are genuinely valued higher (i.e. creating a “revaluation reserve”).
A common reason for getting county court judgements (CCJs) is that letters had been sent to the Registered Office, but the directors never received them. Make sure your Registered Office is correct and there is a forwarding arrangement if it’s different from your trading address.
Have old charges such as debentures released if they are no longer needed.
Ideally, develop a history of successfully repaying borrowing – even if it’s a small business loan or asset finance agreement.
Pay your bills on time (so that your “Days Past Due” score on the Credit Reference Agencies records is strong) and keep up with all finance repayments.
Don’t make lots of finance applications in a short period. Lots of credit applications on your record can make you look desperate for credit, which can negatively impact your rating.
Ultimately, it all comes down to making sure that the public records about your business are the best they can be. Sometimes, a little awareness and housekeeping is all it takes.
If you’re looking for business finance and sense you might be struggling with your business or personal credit score, please contact us. We have many options available.