Is your clients’ growth potential hindered by Credit Scores? Here’s how you can assist

AUTHOR: Marcus Batson

Credit scores are an indicator of the perceived strength of a business typically based on 3rd party information from a number of sources.

They’re used for a number of reasons including, assessing lending applications, opening new bank accounts, setting up a phone line, getting credit limits and payment terms in place with suppliers, tendering for new business, due diligence from a potential buyer or investor are all situations where a strong credit file is important. 

What is Creditworthiness? 
There are a number of Credit Reference Agencies in the market which hold business data, e.g. Equifax, Experian, Creditsafe, Dunn & Bradstreet, Red Flag Alert.

Each of them are used by different suppliers, lenders and associations as a way of figuring out who to do business with and what to charge. What these Credit Reference Agencies think about your client can have a big impact on how easy it is for your client to get the things they need for their business – and what they will pay for them.

Credit Reference Agencies work with a number of data sources to extract and receive data to build a picture of creditworthiness. This data comes from sources such as  key suppliers in the market, lenders,  Companies House, other public data.

As an example, abbreviated accounts data held by Companies House show limited information about a business and therefore just part of the overall picture. 

Other sources are added in to build a more complete picture. These sources may include Open Banking, as linked bank accounts provide highly specific additional data.

As with personal credit scoring, business credit scores do not always capture data such as rent payments and other regular commitments that demonstrate the ability to pay on time.

Why improve a business credit score?

• Improve terms with suppliers 

The better your score, the higher the amount of money you can spend on the account and the longer you will be allowed to make payments. Many businesses will have insurance in place that uses credit scoring to determine the limit and terms they can offer you.

• Access better interest rates

Credit ratings play a huge part in the risk rating of an application for funding. The better a score, the lower the risk to a lender, and typically, the better terms that you are able to access.

• Improve chances of successful tenders

If you need to tender for work, or go through a due diligence process to ‘win’ business, there is a high chance they will review the credit score of the business. All else being equal, the better score will be seen more favourably.

How do you improve a credit score?

• Make payments on time. It takes time to build up a strong credit profile: you need to ensure that your clients are maintaining good financial practices and make consistent on-time payments. 

• Request/Download their credit report from all agencies that hold data on your business.
  
• Make sure all basic information is correct and up to date; addresses, directorships, payment information etc. and write down anything that needs updating.
  
• Collate the latest full set of company accounts and company information (this will cover the last couple of years) including the profit and loss etc.
  
• Work with agencies to ensure the records are updated and provide context to changes. You can contact Experian directly but for other agencies, you’ll need some assistance. 

Here at Swoop are able to review all of these agencies, understand the key ones that are used by your suppliers and lenders and make sure they reflect the business accurately.