Every business that uses finance has a credit score. This number is one of the most significant indicators of a company’s financial well-being. You may not be overly concerned with the score on a day to day basis, but should you need to apply for a business loan it will play a vital role in what deals you are offered and how much you can borrow. Banks look at your company’s score when reviewing applications for loans as it reveals whether you manage your debt well, or if you struggle.
Businesses considered a good risk will be given the best terms and rates because the lender can see they will be good payers. A company that represents a bad risk will have to pay more to borrow, as the lender anticipates having to chase them for payment. Furthermore, your suppliers may also carry out credit checks prior to engaging in a new contract. This practice minimises their risk, because they can quickly see whether your business is solvent and capable of clearing invoices.
A less than perfect credit rating should always be a concern and may even come as a shock. Try to bear in mind that the score your business has today is certainly not permanent. There are many simple ways to improve it and enhance your financial reputation.
1. Clear Invoices and Make Debt Repayments on Time
Whether you owe lenders or a group of suppliers, it’s vital to pay your bills on time to avoid your credit score being damaged. This is probably the single most important thing you can do to keep your rating high. Companies that won’t or can’t clear their debts will be considered a risk – even if other positive measures are in place. Your repayment history is reviewed around once a month, so pay promptly to send a regular message about your ability to manage cash flow.
2. Take Collections Seriously
Bills that you fail to pay for an extended period of time can be sent to a collections agency. You should get plenty of warning before this type of action takes place and when you do, it’s always best to pay the money you owe or organise a payment schedule.
If you don’t manage to avert a collections order, comply with the agency when it comes to paying off the debt as soon as possible. Once you are able to make the final payment, ask the agency involved in retrieving your debt to wipe the negative history from your credit score.
3. Monitor Your Score Carefully
In order to keep your cash flow and credit control in good shape, you need to examine your business’s credit score at regular intervals. There are plenty of agencies that compile reports and they can provide you with detailed information. Even if you have to purchase these reports or sign up for monthly updates, it’s worth the investment.
Knowing what score you have and what is noted on your report, allows you to tackle the issue head-on. You can start work on fixing the negative factors and begin to raise your score in a targeted way.
4. Correct Errors and Omissions
Don’t assume that every supplier provides data about your business to companies that report credit-based activities. Instead, be proactive by adding references from other organisations to the credit file held on your company. A collection of positive reports can help to swiftly grow your score.
At the same time, keep a careful watch on any less than favourable reports in the negative category. If you notice the information is referring to historic events or is simply inaccurate, you can get in touch with the credit scoring agency to raise a dispute.
5. Be Aware of Your Customer's Business Credit Score
When you deliver goods or services that are not paid for or you receive a late payment, it can have a knock-on effect on your finances. A lack of funds could even prevent your business from meeting its financial commitments. Businesses that bill other business on 30 or 60 day terms can attract more revenue, but it does expose you to a level of risk. This risk is increased if you don’t credit check your clients in advance.
Monitoring the business credit score of customers and also suppliers, ensures that your business has prior warning about them going into administration or suffering a substantial downturn. If you do spot a trend or another warning sign that indicates a company is in trouble, you can take action there and then. By moving swiftly to deal with the problem, your business can avoid losses and protect its credit score.
6. Only Apply for the Credit You Need
By applying for and using credit only when necessary, you can bring down your debt to credit ratio, one of the determining factors in any credit score. With lower borrowing that equates to a ratio of 15% or under, your credit score will be better. Furthermore, when you apply for any type of credit, a note is made on your report whether you are given the funds or refused.
Each rejection will be a negative point, but even successful applications in high enough numbers are undesirable. Trying to obtain multiple loans could indicate that you are struggling to manage your finances and therefore represent a risk to lenders.
7. Give Your Business Every Chance of Success
Your business's credit score is represented by a simple number, but it has a huge impact on the potential success of your company. A good score will indicate to suppliers and lenders that your bills get paid on time and your company is solvent.
This gives you access to better deals and more flexibility, as well as saving your business money. Once you’ve got to grips with the scoring process, you’ll want to work on getting the best rating you can. These tips won’t guarantee an immediately higher grade, but they can guide you toward getting the best score for your company’s current position.