After a career in banking, Regional SSU Cluster Manager, Wyn Jones, offer his insights into how to manage your business credit score and why it is important.
What is a Credit Score?
A Credit Score is a number that indicates how reliable you, or your business are at borrowing and repaying money.
How & When are Credit Scores Used?
Virtually all lending decisions from UK Banks and other finance institutions under £100k will be impacted by credit scoring systems. In many cases this will be the only element of the decision making.
All other finance companies including HP, Asset Finance, Vehicle Finance, Trade Finance, and Invoice Finance will refer to similar systems.
These institutions run their own credit scoring systems but also refer to Credit Reference Agencies for external credit scores.
What Affects Your Credit Score?
If you are looking to borrow from a bank, the scoring system of the bank will look at Internal Data and External Data.
Internal Data – your company’s track record with them. For example, how long has your account been open? has previous debt been repaid on schedule? or have any items been unpaid due to lack of funds?
External Data – External Data is sourced from Credit Reference Agency searches, the personal credit score of directors, Companies House Data, HMRC, County Court Judgements (CCJs) and other credit agreements being rejected or declined.
Our Top 10 Tips:
GOOD HOUSEKEEPING
Wherever possible, don’t allow a situation to get out of hand. Pay creditors when due, don’t stretch credit terms, it is better to request longer terms than to abuse existing ones. Communicate with creditors, don’t hide or ignore them.
COUNTY COURT JUDGEMENTS (CCJs)
CCJs are often for relatively small amounts and non-payment is due to dissatisfaction or minor grievances. Don’t let them get to court! They can have a seriously negative impact on your credit score. Sometimes it’s best to just pay up and think of the bigger picture.
BANK BALANCE
Keep a close track on the bank balance. If you have problems, then speak to the bank in advance. Clear and advanced communication with the bank is better than no communication!
REPAYMENTS
Know when your repayments are due and ensure you have funds available to meet them in good time.
COMPANIES HOUSE
Ensure you submit accounts and returns to Companies House on time and in full. Late returns ring warning bells for lenders !
INFORMATION CHANGES
If any information changes, such as your registered office address, make sure you update it quickly. Notify any suppliers, customers and Companies House of any updates.
COLLABORATION
Collaborate with your suppliers. If you have a good working relationship, ask them to provide feedback and share payment record data with Credit Reference Agencies.
PERSONAL FINANCE
Ensure your personal finances are healthy. If you’re a start-up, or sole trader with little financial information available, data from the business owner’s personal accounts may be used to calculate your business credit score.
SUBMIT CREDIT APPLICATIONS ONLY WHEN NECESSARY
It can be tempting and sometimes essential to explore the finance options available to you and your business. By submitting too many credit applications in a short period of time, this could suggest that you’re struggling to secure funding. This can also trigger a credit search on your business, which is recorded on your credit record and can impact your credit score. When enquiring about finance, ask for a quote instead, to limit the potential damage.
CHECK YOUR SCORE
Regularly check your business credit score. You can also sign up for alerts that notify you when your credit record changes. This way you can act fast to rectify any problems.
Have any questions? Speak to one of our Cluster Managers, their contact details can be found here.