Do you know your business credit score? When was the last time you checked your business credit report? Is your credit score low and you want to improve it? Your business credit score can have an impact on your business in a number of different ways so it is important to understand how credit scores work.
In simple terms, your score will be a number between 1 and 100. The closer to 100 you are, the better. In fact, a score of between 80 and 100 usually means you are a low trade risk. Below are the things that can impact your business credit score as well as tips to improve and maintain it.
Things That Impact Your Business Credit Score
- Years in business
- Slow payment history, particularly if the slow payments are recent
- Public records such as judgements, collections, and bankruptcies
- Trade history such as payment histories, outstanding balances, your use of credit, etc
- Number of credit applications, particularly if they are recent
Improving and Maintaining Your Business Credit Score
- File your accounts on time – not filing your accounts with the CRO on time can have a negative impact on your business credit score that will last a long time.
- Check you have a credit score – you can do this online using a number of credit checking services including SoloCheck, Experian, and Creditsafe. If you don’t have a business credit score you will need to take steps to build one. This includes making sure you have registered your business. You will also have to find companies who will extend you credit, although it will have to be without a personal guarantee or any checks on your personal credit.
- Pay your invoices on time – also, don’t get loans or credit facilities if you think you might not be able to make payments on time in the future.
- Control your inventory – relying on rapid turnover of stock to maintain liquidity will negatively affect your credit score.
- Monitor your business credit rating – do this regularly so you can check performance and identify errors. Correct – if you do identify errors in your credit report, take steps to correct them. This normally involves submitting a form to the credit scoring company. Remember, you will probably have to do this with all the main credit referencing companies individually.
- Convert directors’ loans to equity – high debt to equity ratios are not good for your credit score.
- Avoid losses – where possible, avoid reporting losses, particularly if they are significant. If you think your company will end up in a loss-making position, reduce costs to mitigate the losses.
- Proactively deal with court cases – judgements by default are bad for your credit score so either defend a claim or settle it.
- Work with auditors – credit scores take into account qualified comments on an auditor’s report so do everything you can to answer auditor’s queries during the audit.
Even if you don’t need access to credit, maintaining a good business credit score will give you more flexibility and more options for your future plans.
For any other help or advice with your business, please contact a member of the Gilroy Gannon team today.