• Blog
  • /
  • A Guide on How to Improve Your Business Credit Rating

A Guide on How to Improve Your Business Credit Rating

Estimated Read Time: 6 Minutes

JESSICA LAMBERT , 26 January, 2023

Failing to understand the importance of your business credit rating could be one of the biggest faux pas you make during your time as an SME owner. You undoubtedly dedicate a lot of time and hard work into making your business work, but amongst the ever-growing list of things to do now that you are your own boss, ensuring that you have a positive credit score should be at the forefront of your mind.

Realising that your business has its very own credit score means that you are already ahead of a lot of other SMEs in the UK. The fact that credit reference agencies actively collect data on every single individual is just a given, but a lot of business owners are not aware that these same agencies also check the creditworthiness of their company.

Alternatively, you might have recently checked your business credit report, only to find that the financial situation of your business is not as attractive as you’d have liked.

Establishing good business credit is essential if your SME is to thrive as your score will impact your ability to get the best deals from suppliers, as well as hinder your chances of securing external funding. We previously talked about the importance of funding for your business growth and how your fear of funding can hold you back from reaching your full potential – so access to external funding sources is vital if you plan to expand and sometimes even a necessity for businesses to continue operations altogether.

Additionally, putting an emphasis on good financial responsibility is key for businesses that are keen to establish a positive reputation with both its customers, lenders and suppliers.

If you are keen to improve your business credit score but are not entirely sure about how to approach doing so, continue reading this guide to obtain the best financial health for your business for years to come.

Regularly Monitor Your Business Credit Score

According to Experian, nearly three in five SMEs have never checked their commercial score. But worse yet, of those who have checked their score, over half have failed to do so in the last six months.

Whilst it might seem surprising that so many businesses do not check their credit score regularly or at all, it isn’t when you consider that the majority simply do not understand what their commercial credit score means.

You can get a report from one of the various reporting agencies that conduct analysis on your business to form your commercial credit score. You can purchase one-off reports that will give you surface level information on the score of your SME and these company credit checks are recommended regardless of whether you intend to apply for finance. Being aware of your credit score and checking it regularly is an important aspect of running a business that is in a good place financially.

Invest Now to Gain Insight

There are various tools out there that businesses can utilise in order to better understand the current financial situation of their SME. Experian also found that only 13% of small businesses could correctly identify each of the key factors that will ultimately impact the credit score of their company.

Ignorance to the health of your business’s credit rating might massively hold it back in years to come and it will likely only become an issue when you need to apply for external funding to grow or even sustain your business operations.

There are various services available to SMEs that assist with business credit monitoring. By investing in this kind of data, you will be able to stay one step ahead and will also have the opportunity to address negative changes to your credit rating before it snowballs into a bigger issue.

You can check and improve your business credit score with My Business Profile. This is an invaluable purchase for your business as it will send automatic alerts whenever there are significant changes to your company credit rating. By giving yourself the chance to be reactive, you will have a better chance of reducing the damage to your commercial credit score in the long run.

This tool is especially helpful for SMEs that are hoping to access external funding as it can show you exactly what lenders see when making credit decisions about your company. Lenders always refer to information supplied by credit report organisations before going ahead and approving a loan, so with this kind of tool, you can address any negatives on reports so that your business loan application is more likely to be approved.

Always Pay on Time

This is a given, but it is still an ongoing issue for almost every industry in the world. BACs recently released troubling data about the cost of recovering overdue invoices for each SME, with 43% claiming to have experienced late payments in 2018. It is estimated that late payments suffered by UK businesses has cost SMEs a staggering £13 billion in total and that is a figure that is showing no signs of decreasing in the near future.

When one supplier pays late, it consequently has a knock-on effect for the rest of the supply chain, so failing to pay on time could actually end up harming your business in the grand scheme of things.

But with regards to your business credit score, it is essential that you always pay on time as late payments will have a negative impact on your score and it can take a long time to recover from this if you repeatedly make the same mistake.

Credit reference agencies supply data on your business that includes its financial history and this includes any information about payment defaults and outstanding County Court Judgments (CCJs). Even just one default will negatively impact your commercial score and this information will remain on your company’s file for a minimum of six years.

Share Information with Relevant Parties

Be proactive and actively share information with credit reference agencies (CRAs). A big part of what they do as credit checkers is to validate all of the information on your business record, so verifying that what is on your report is accurate regularly is essential

Do Your Due Diligence with Everyone You Work With

Your business credit score is not just reliant on your own success but also that of those you get involved with too. It is a good idea to monitor the credit positions of both your suppliers and customers, as a problem that starts externally could end up harming your own score, such as if a business you rely on goes into administration.

Educate Yourself

A lot of company owners and business decision makers have no idea how their commercial credit score is calculated. You may have checked your business credit score recently, but do you know how CRA’s have arrived at that figure?

Various factors all contribute to your commercial credit rating, including:

  • Any outstanding balances
  • The number of trade experiences your business has had
  • The typical payment habits of your business
  • How well your business utilises credit
  • Trends and patterns formed over time
  • Information on county court Judgments

For more small business advice and tips, read our related posts below. If you are experiencing cash flow challenges or want to realise your business growth plans, get in touch with our team of Funding Specialists today on 020 7839 9451 or email [email protected].





Wordpress Social Share Plugin powered by Ultimatelysocial