Managing and Improving Credit Score

When asked for a list of company priorities, most SME owners probably wouldn’t put “managing my commercial credit score” anywhere near the top. Those who don’t pay attention to this increasingly important indicator of their company financial health are missing a trick.

Commercial credit scores are a key part of the application process for everything from bank loans to rental agreements and utility packages. They are also important for new business generation; many tender processes now take a potential supplier’s score into account before agreeing a new relationship. Companies are much more likely to be able to negotiate lower prices and better terms if they are classed as a “safer” bet than other firms.

There are several steps that company owners can take to improve the perception of your credit score:

1. Check your own commercial credit score every six months and avoid County Court Judgements (CCJ)

Get your own report and ensure you check it regularly so that it reflects your circumstances. If a CCJ does occur, ensure it is settled within the month. In the past, one CCJ would not necessarily involve the withdrawing of credit lines, but it is more likely to have a greater impact in the current climate.

2. Pay your invoices and file your annual returns and financial accounts on time

Monitor your customers and take action if they are falling behind, you can help protect your company from potential cash flow issues by being aware of potential delays in payment. Negotiating realistic payment terms is thus pretty crucial as, “A deteriorating payment position is often a sign of financial distress,” explains Ade Potts. Late filing of accounts can be a sign of financial distress. If you know your accounts will be late, consider filing partial rather than full accounts, so that any potential misconceptions can be rebuffed.

3. Manage your personal finances as well as you can

“If financial data on a company is scarce, their personal data may be used to gauge the financial health of the company.” Needless to say, there are a number of things to look out for on this front. “It means no CCJs, paying your bills on time, being on the electoral roll at your home address and having a good income,” comments Aidan Halliday, Sales Director at the credit risk consultancy, 4most Europe.

4. Make sure your company is on the map and hire an FD

If your company falls below the radar you could struggle to gain access to credit and services as your existence cannot be easily verified. Non-limited companies should consider registering with a credit reference agency or a business directory such as Thomson. Malcom Durham, chairman of FD Solutions. “A proper FD who is actually worthy of the title will know by looking at the accounts what impression they give to others and how to present the best impression and improve the situation of the company over time.”

5. Protect other interests

Regardless of the age or turnover of one’s current venture, the fate of a company owner’s other projects can have a significant effect on credit rating. “If we look at Joe Smith Ltd and the director is Joe Smith, we will also look at whether Joe Smith has directorships of any other companies, past or present,” says Mike Hartley. “If those companies are performing well, then it’s going to boost the credit rating of his current company but if he has had historic involvement in liquidated companies, then that information is going to be available to creditors.”