Improve your credit score to recession-proof your business

When your business is facing the prospect of a global slowdown or recession, it’s important to be in total control of your financial position. One way to do this to have a better handle on your credit score and your current risk-rating with the credit bureaus.

So, what factors actually drive your business credit score? And how does improving your score help you overcome the big economic threats your company faces at the moment?

What does your credit score say about your business

Your business credit score is a measure of your creditworthiness – i.e. how much of a risk your company poses to banks and lenders when you borrow money.

Why is your business credit score important?

• If you have a good credit score, the big 3 credit agencies (Moody's, Standard & Poor's, and Fitch) and the main credit bureaus will see you as a low-risk borrower. As a low risk, banks and lenders are more likely to lend you money, safe in the knowledge that you’re able to make the repayments.
• If you have a poor credit score, you’ll be seen as a high-risk borrower. This raises red flags when you approach banks or specialist lenders looking for funding. A high-risk rating also limits the trade credit that suppliers will offer you, and may well ring alarm bells for potential B2B customers if they run a credit check on you.

Why is it important to have a good credit score in tough economic times?

When times are tough and cash is tight, businesses tend to rely on external funding, lending and credit to make ends meet. These routes to finance are a vital part of keeping your business in a good cashflow position and keeping the company well capitalised.

If you’re lumbered with a poor credit score, banks and lenders will be less willing to let you borrow – and that could be catastrophic during a prolonged period of recession.

What can you do to improve your credit score?

Many credit bureaus will allow you to run a credit report on your business. There is usually a cost involved, but getting this credit report gives you an up-to-date understanding of your credit score, your risk-rating and the impact they may be having on your ability to borrow.

If you have a poor credit score, there are steps you can take to reduce your risk as a business and make the company a more attractive prospect to banks, lenders and suppliers.

To boost your credit score, you can:

• Improve your payment performance – a key metric that credit agencies will look at is your payment history – how long it takes to pay your suppliers and settle your bills. By paying your bills as soon as possible, you improve your payment performance and show that you have the liquid cash to settle your debts on time and in full,
• File your accounts in full – filing abbreviated or micro-entity accounts reduces the amount of public financial information that the credit agencies have access to. By filing full statutory accounts each year, you give the most in-depth and accurate overview of the company’s financial position – which should result in a more accurate credit score.
• Make sure you’re using the right SIC code – some industries and sectors will automatically have a higher risk rating than others. If you’re not using the correct Standard Industrial Classification (SIC) code to describe your business, you could be lumbering yourself with a poor credit score for no reason.
• Build great customer and supplier relationships – nurturing good customer and supplier relationships can have a positive impact on your finances. Customers that value your business are more likely to pay on time, and trusted suppliers will be more open to offering trade credit. The outcome is a boost to your financial position and improved finance data for the agencies to analyse when updating your credit score.

Talk to us about supercharging your credit score

By doing your best to improve your credit rating, you make it easier to keep your cashflow on track. With improved access to funding and trade credit, you’re ready to tackle the cash gaps and keep the wheels of industry turning in these difficult times.