After settling on the ‘great idea’, you’ll find yourself becoming an expert in marketing, winning new business and being an employer, not to mention facilities management and procurement. Another important aspect of running a profitable business is understanding how to manage your finances, with business credit checking forming an integral part of that.
Learning about your company credit score might not be the first thing that springs to mind when there are bills, staff and suppliers to pay. But understanding what it is, why it’s important and how you can use it to your advantage is a small step that can make a big difference to your entrepreneurial journey.
Business credit checking shouldn’t slip to the bottom of your ‘to do’ list. In fact, having a solid understanding of it is more important in a fast-moving world, enabling you to secure finance, and work with customers that won’t lead you into bad debt.
So, whether you’ve just launched your business or have been operating for a while, our guide tells you everything you need to know about business credit reports, how to check a company credit rating and more.
What is a business credit score and why is it important?
If you’ve ever registered for a credit card, purchased a car on finance or applied for a mortgage, you’ll be aware of your own personal credit rating. All adults have a credit score – a rating that lenders use to see how likely you are to default on a loan or credit card, generated via credit reports with Credit Reference Agencies (CRAs) like Experian.
Staying within your overdraft limit, avoiding bad debt and paying bills on time all help build a good personal credit rating, enabling you to access preferential rates on finance products.
A business credit score works on a very similar basis, yet many entrepreneurs have never even considered checking their rating or, in some cases, know little about them.
If you’re a sole trader, lenders will use your personal credit score to determine your creditworthiness but if you set up a limited company, you can build your business credit rating independently.
Just as boosting your own credit rating can help you secure a good deal on a mortgage for your dream home, looking after your business credit score can help you achieve your business goals. Indeed, access to finance could mean the difference between taking your company to the next level or staying stuck in a professional rut.
Having a good business credit score can also save you money in the long term, giving you access to loans with lower interest rates. The opposite is true if your score is low, since you may only be offered higher rates that could impact your finances and ability to grow.
A company credit rating can be used in two ways. As well as being a tool to help you secure the best investment opportunities for your small business, it’s also essential for managing cash flow. Before entering into long term contracts with new suppliers or clients, running a business credit check to get an insight into their credit rating could show you any hidden red flags and ensure your working relationships don’t result in years of chasing up bad debt. It’s likely they’ll run one on you too so it pays to keep yours high.
There are some industries such as construction that rely on complex supply chains where business credit is fundamental to their operations. However, growing your business credit rating is essential for every small business, particularly in the early stages when they lack the financial buffers for late or missed payments.
Things that can affect your company credit rating and how to improve it
When assessing your own or a supplier’s business credit rating, a score is given ranging from 0 to 100. 0 represents a high risk, while a score of 100 indicates a business that presents a very low financial risk.
So, every business owner’s goal is to get as close to 100 as possible. There are a number of factors that can send the scale flying up or crashing down. Below, we outline the factors that can help you achieve a healthy credit score.