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Six ways to improve your business credit rating

By June 19, 2018 February 21st, 2020 No Comments
credit rating

Having a good credit rating means that your business is quick to pay its bills and settle any debts and means that other businesses will be happy to trade with you.

If you have a good credit rating, suppliers may even give you more favourable payment terms. Another important reason to have a good credit score is that lenders will give you better and easier access to credit and capital.

Think of it the other way round, would you be more inclined to do business with a company that pays its dues on time, or one which is always 30 days late?

The answer rings pretty loud and clear, so if you want people to do business with you, it’s a good idea to get the best possible rating that you can.

 

How are business credit scores calculated?

credit ratingDifferent businesses come up with their own criteria to create credit ratings for their customers. You can and should pay for a certified credit score, but your business will most likely also be judged on past performance of how quickly you pay what you owe.

Most businesses are also linked to debt collection services, so they will know which businesses pay promptly and which don’t. Companies also do their own investigations into your creditworthiness and this can take a hit if you have ever been reported to a credit scoring company if you have paid very late.

Credit scores are usually rated at 1-5 or 1-100. The higher your score, the better you are at paying bills.

You can also find out a business credit rating when using accounting software such as Xero, which will show you a company’s credit rating when you make out an invoice.

 

How to get a good business credit score

Not knowing the ins and outs of what makes a good business credit rating can be confusing, so here are some handy tips from our accountants to make sure that businesses don’t get flagged by lenders or other businesses.

 

1 Review your credit rating every quarter

Pay a credit scoring company to carry out an audit at your business to establish a credit rating. Get them to do this every quarter. If you ever notice that your credit rating has dropped, then contact the credit scoring company and ask them why. Sometimes, credit scoring companies make errors and if they have, they are obliged to correct the issue.

There can also be instances where vendors might have reported you for purposefully withholding a payment for legitimate reasons, such as a dispute. In such instances, this can be corrected.

 

2 Pay up on time

At the end of the day, your credit rating is going to boil down to one fundamental factor – whether you pay your bills on time, consistently.

We recommend that you ensure you have a good accounts payable system, so you know when bills are due. Better yet, get in touch with Dexterous Group to do it for you against a competitive fixed fee.

 

3 Keep an eye on your cash flow

Much of your ability to pay your bills depends on your cash flow. If you run out of money to pay your bills, your credit score will take a hit.

The most tried and trusted way of keeping a steady cash flow is to make sure that your business is paid on time. You can help keep things moving smoothly by issuing invoice payment terms and following up.

 

4 Lower your dependence on late payers

Businesses that are always late with payments will put yours under cash flow pressure. Because you are not being paid on time, you might not be able to pay your own bills in a timely manner, which will affect your credit score.  Over time, try to move away from clients that are a drain on your own resources.

 

5 Outsource accounting and bookkeeping

Dexterous Group offers various services which can help you improve your credit rating score. We can handle all your incoming and outgoing payments to make sure that you always meet your deadlines.

We also offer reporting services and cash flow management through cloud-based accounting software to make sure that you are getting paid and that your business is getting the cash flow that it needs.

 

6 Be honest

All businesses experience periods where they are stretched. Honesty is the best policy, so if you think your cash flow might be a bit tight, inform the other business beforehand. If you have been reliable in the past, they should be more flexible.

If your cash flow becomes restricted out of the blue, call the vendor and explain why and when you will be able to pay. If you do this, they will be less likely to report you for late payment.

 

What’s a good credit rating?

You might think that you need a score of 4 or 95 to be considered as a business with a sound business rating, but this is not actually the case.

In reality, most businesses sit in the middle band and as long as you are not in the bottom quarter of the rankings, most businesses will be happy to work with and trade with you.