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The Importance of Building Your Business Credit Score

The Importance of Building Your Business Credit Score

There’s never been a more critical time to make sure your business credit score is in the best shape possible.

With costs spiralling and the value of unpaid invoices rocketing by over 20% it is vital for companies to get to grips with their credit file and ensure they can get the best possible supplier terms, improved funding and finance rates and increased working capital.

A recession is looking more and more likely, company insolvencies are soaring, costs are squeezing SMEs tighter than ever, and rates continue to be hiked so businesses must do what they can to mitigate the impact of these external factors. Businesses that can keep on top of their credit file will find it much easier to navigate these uncertain waters.

First, let’s look at the benefits of a good business credit score.

Benefits of a good business credit score

A good business credit score will give you the freedom of having more access to capital, better rates which will make loans more affordable and put less strain on cashflow and put you in a better position to place more orders with more favourable terms.

Best possible credit terms

A good credit score indicates you are unlikely to default on payment in turn showing your creditworthiness. This makes you more appealing to suppliers who will grant you better credit terms, putting your own business in a better position.

Ability to purchase more stock from suppliers

Linked to receiving more favourable credit terms, your trustworthiness based on your good credit score will mean suppliers will grant you higher credit limits since the risk of defaulting on payment is low.

Place more orders

As well as being able to place larger orders, you will also be able to place more orders from multiple, different suppliers, allowing you to diversify your offering and be better equipped to fulfil your customers’ needs.

Qualifying for finance such as loans

A good business credit score will make it easier to qualify for finance such as loans, giving you access to additional capital when needed such as for growth and expansion.

Secure better rates for finance

Not only will finance be easier to qualify for, but you will also benefit from better rates making this finance more affordable for your company.

What is deemed a good business credit score

Calculating your business credit score is complex, considering a whole host of different factors. Each credit reference agency has different criteria they take into consideration and how they weight these factors, and each have a different algorithm that determine the business credit score.

Graydon use an alphabetical system with AAA being the best rating, C being the weakest rating showing a company is high-risk and D indicating a company is bankrupt. Experian, Creditsafe and Equifax all rate business credit scores out of 100, however, because each use their own scoring systems there can be variations in your business credit score between credit reference agencies.

The higher your score, the better your business credit rating. A score of 80 and above signals that your company poses a low credit risk, so will be much more likely to reap the benefits discussed above.

Reasons your business could have a poor business credit score

When seeking to improve your business credit score it is important to understand what has brought your score down so that you can work on rectifying these issues.

The usual factors leading to a lower business credit score include:

  • Defaulting on payments
  • Not abiding by credit terms
  • CCJs
  • Bankruptcy
  • High debt to credit ratio
  • Late filing accounts to Companies House
  • Making too many credit applications in a short period of time

Once you identify what could be impacting your business credit score it’s time to work on improving it!

Ways you can improve your business credit score

Make payments on time

Creditors will look at your business credit score to gauge how likely you are to make payments on time, so this is a critical component of your company credit file.

Your business credit score will reflect your past payment behaviour, so paying on time and abiding by your credit terms will boost your credit score.

Keep your information up to date

All information on your company should match so you should always keep your suppliers, customers, lenders, banks and directories such as Companies House up to date with things such as your registered address.

Any discrepancies will impact your business credit score.

Being as transparent with your company finances as possible

Filing your full company accounts with Companies House as opposed to abbreviated accounts will make you more appealing to potential lenders.

Using a business bank account, registered to your company, is essential as it will be linked to your company credit file. This will allow lenders to see a picture of the cash flowing in and out of your business so they can make more accurate credit decisions.

Open Banking has been around for the past 4 or so years and allows banks, lenders and other third parties to securely exchange data to provide more clarity over a company’s finances and provide more accurate credit data. Opting into Open Banking will therefore have a positive impact on your business credit score.

Apply for credit when it is a necessity

When you apply for credit, a footprint is left on your credit file which shows other lenders that you are seeking credit. If you make multiple credit applications in a short period of time it suggests that you may have cashflow issues and are finding it difficult to fund your business which will deter other lenders by bringing your business credit score down.

Therefore, you should only apply for credit when you absolutely need to, to give yourself the best possible chance of securing credit.

Supplier references

If you have a good relationship with your supplier, you can ask them to share payment record data with credit reference agencies. The fact you are making payments to suppliers on time will help improve your business credit score.

Always credit check your own customers

Credit checking your own customers will help you make accurate credit decisions and offer credit terms that will protect your company from credit risks which will minimise the instance of late payment.

Ensuring you are paid on time will keep your cashflow healthy, in turn having a positive effect on your business credit score.

Get Your free company credit insight report

Darcey Quigley & Co have partnered with Lightbulb Credit to provide free company credit insights to businesses.

Your free no-obligation company credit insight report will give you:

  • Whole Market View: Current credit ratings across Experian, Creditsafe, Graydon, Equifax, and the maximum and minimum these have been in the last 12 months
  • Credit Limit Data: ​Current recommended credit limits across all the agencies, and the maximum and minimum these have been in the last 12 months.
  • Risk Bandings: Which are vital to know when tendering for work on large framework agreements.
  • Trade Payment Data:  Showing how well you adhere to supplier payment terms and how this has changed over the last 3, 6 and 9 months.
  • ​Supplier Data: How many supplier invoices have been shared with the agencies showing how active and stable your company is perceived to be.

Find out how your company looks to lenders and suppliers for free today!

Improving your business credit score with Lightbulb Credit

Lightbulb Credit is the UK’s first whole market Credit Insight, Credit Improvement, and Monitoring service for businesses.  They help companies understand their ratings and their expert team work directly with the agencies to improve your company credit score.

They seek to simplify the business credit ratings market and make it easier for businesses to navigate, so that they can maximise the potential of their trade credit profile.

The brilliance of Lightbulb Credit is that they can improve your company credit score in as little as 2 days!

Get your free company credit insight report today!

Meet our credit management and commercial debt recovery content writer, Declan!

With a keen eye for detail and a passion for educating others, Declan is committed to creating informative and engaging content that empowers readers to get a firner grasp of their credit control to improve their cashflow.

Connect with me on LinkedIn!

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