Credit scores are being used more frequently in the external market to evaluate the strength of businesses. This measure is becoming increasingly crucial for lenders and companies as it predicts a business's future stability. Therefore, potential suppliers, lenders, or customers may check your credit score before deciding whether and how to trade with your company.
This is particularly crucial due to the slump in trading conditions in recent years. Numerous enterprises face weaker financial standings, resulting in lower credit scores affecting various sectors.
Your credit score is crucial as it affects your likelihood of being approved for credit at favourable rates. It also impacts your ability to secure credit cards, loans, mortgages, and mobile contracts.
Improving your business credit score is essential for accessing favourable financing terms, cultivating vendor relationships, and building credibility. Follow these steps to enhance your business credit score:
1. Keep Company's House information up to date
Small businesses are limiting financial information in the public domain, causing lower credit scores due to scores due to lack of data. Companies House will require all companies to file a profit and loss account in the coming years. Filing more information will increase credit score accuracy.
2. Pay your bills on time
Make sure to pay all your bills and debts on time, including loans, credit cards, and payments to vendors, as timely payments significantly impact your credit score. When managing your company's suppliers, you must review the list of those you pay and the payment terms you have agreed to. Ensure you stay within your credit limits and overdraft facilities for banks or lenders. Additionally, it's crucial to make all payments on their due dates.
3. Access finance only when you need it
When making decisions about your business, seeking financial assistance is a good idea. In some cases, an influx of funds may be necessary to achieve growth. However, it's essential to be mindful of the debt your business accrues and only submit a few loan applications quickly, as this can negatively impact your credit score.
4. Establish business credit accounts
To build a positive business credit history, it's essential to open and maintain credit accounts like credit cards and lines of credit in your business's name. Use them responsibly by making timely payments and demonstrating consistent positive transactions, which can lead to rewards from banks and lenders. If you have inactive or low-activity accounts, consider closing them to avoid negatively impacting your business credit score.
5. Monitor Your Credit Profile
Regularly monitor your business credit profile to stay informed about any changes, updates, or potential issues that may impact your credit score so you can resolve them quickly.
6. Build Positive Trade References
Cultivating positive relationships with vendors, suppliers, and creditors who report payments to business Credit Reference Agencies (CRAs) is essential. Be sure to request that they report your positive payment history regularly. Maintaining strong connections with these businesses can help establish trust and lead to better payment terms. This can also minimise any surprises regarding payment delays, protecting your cash flow and ensuring timely payments for other business expenses.
Companies often establish their terms and interest rates based on a customer's credit score and perceived level of risk. If a company is deemed risky, the terms and rates offered may be less favourable. This is also true for banks and lenders who may quote higher interest rates for businesses they consider to be "riskier".
Your credit score is crucial in managing your finances and obtaining funds for business expenses or expansion. Credit from your suppliers essentially equates to free cash flow. You can reduce reliance on external borrowing and increase your available cash flow by improving your internal working capital (i.e. a quick turnaround in customer payments).
If you require financing to support your business and expansion, reduced interest rates can enhance your profitability and daily cash flow. It is worth noting that a better credit score can lead to more favourable supplier conditions and lower interest rates.
You can access our first-class service through our online portal, which provides reliable business credit score data to help you check and manage business risks anytime, every day of the year, safeguarding your business.
Our Company Credit checks are beneficial in managing these risks in many ways:
CoCredo has helped protect and secure over £27 billion of customer turnover.
Improving your business credit score gradually requires diligence, financial responsibility, and a strategic approach. Reviewing and adjusting your strategies regularly to ensure continued improvement is essential.
If you want to check the credit score of a company you do business with, why not take advantage of our free trial business credit report?