Your business credit score is an incredibly important part of whether other businesses choose to take you on as a customer and choose to offer you credit on the goods and services you purchase.
However, data from Experian shows that almost a fifth of small business owners don’t really understand what their business credit score is or how to make the best use of it.
If you’re one of that fifth, or you’d just like to make sure you fully understand what a good credit score is for your business, we’ve put together this brief guide to help you.
What is a business credit score?
Your business credit score is a value generated by companies like Experian or Dun and Bradstreet and is generated from a huge range of information.
Some of those factors include your trading history, your payment behaviour and whether you have registered with Companies House.
Some of the more common factors include:
- Reports from debt collection services on whether you have or haven’t been paying your suppliers.
- Publicly available information about your company’s trading activities that are gathered from banks or the government.
- Reports from suppliers who have deliberately reported you to a credit scoring company because of your poor payment history.
Much like a personal credit score, your business credit score is used by banks, suppliers and potential customers or creditors to make a credit check on your to determine if doing business with you is a sound decision and what credit terms they should offer you.
The better your credit score, the more likely you are to be offered credit, or larger amounts of credit, and you might also pay lower interest rates on the amounts you borrowed.
Suppliers can also use your credit score to determine whether they want to do business with you, as it works as an indicator of how reliable you are when it comes to paying back credit or making timely payments on invoices.
What counts as a good business credit score?
Business credit scores are worked out on the Delphi range, which runs from 1 to 100. A score of zero counts as a failed company and anything in the 90-100 range counts as very low risk.
Ideally, you want your business credit score to be as high as possible, as anything below 50 on the Delphi score counts as an above average risk and only gets worse as the score goes down.
How do I get a good business credit score?
Well, the simple answer to this question is to pay your bills on time, but we all know that business is never as simple as that.
The reality is that getting and maintaining a good business credit score is about paying your bills on time whenever you can and minimising the fallout when you can’t, and we’ve got some tips to help you do just that.
Implement effective credit control
It might seem like control over your accounts payable is the most important factor in keeping a good business credit score, but your accounts receivables are just as important.
Small businesses live and die by their cash flow. No cash coming in means no cash to pay your suppliers.
The good news is that effective credit control doesn’t have to be time-consuming. On average, Chaser users get paid 16-days faster while also saving more than 15-hours per week on credit control activities.
We also have a range of free resources you can use to set up more efficient credit control, such as a credit control and debt collection policy template and email reminder templates for when your own customers are late on a payment.
Be upfront with your suppliers
If you do run into financial difficulties, don’t just neglect your bills. Reach out to your suppliers and talk to them about the situation.
If you are able to give them a better understanding of your difficulties and when they might expect to be paid, they are less likely to report you to a credit scoring company.
The same applies to any loans or lines of credit you might be unable to pay.
Most banks and other financial institutions are flexible enough to be able to adapt to difficult business situations and one uncomfortable phone call is always better than a default on your account.
Always be checking your business credit score
Your business credit score isn’t just an interesting number you can check in on once a year. It’s a vital metric that others use to make important decisions about your business.
You should be checking your credit score a minimum of four to five times per year and, if it has changed, making sure you understand why it has changed.
Credit score companies are legally required to inform you about why your business credit score has changed.
It’s worth investigating these changes as they might be the result of mistakes on behalf of the credit company or vendors mistakenly reporting you for payment issues that didn’t occur.
The best way to keep a good business credit score is to make sure you are constantly monitoring it, as you do with other important business KPIs.
Look after your score and it will look after you
Given how important your business credit score is to hugely important aspects of your business, such as getting lines of credit or being accepted as a customer by a supplier, it’s hugely important that you pay as much attention as you do to other aspects of your business.
Now that we’ve given you the rundown on what a business credit score and how you can improve it, you’ve got all the tools you need to do exactly that!
