A business credit score exists for every business in Australia, small and large. Every business has one, like a permanent record, which banks and suppliers use to determine a businesses credit worthiness and reliability. It is a rating that represents how effectively a business manages its cash flow and makes payments on time.
Companies like CreditorWatch, Equifax and Illion create reports from a range of factors and available data, which all add up to determine a business’ ‘creditworthiness’ — but, don’t get overwhelmed. There are some everyday practises which will boost your small business’ cash flow and make your credit history an asset for future lending. Here are five steps to help manage your business credit score so you can take advantage when the time comes.
Your credit score is made up of detailed company information, trade payment history, debts and assets and beneficial owner credit history. A better credit score means better supplier payment terms when it comes to negotiating contracts and better access to finance. Generally, a business is given a score out of 1000 — the higher the number the better — and it will determine how much you can borrow,how high the interest rates will be or how many ‘days’ you get from suppliers. It is integral that, as a business, you check your credit score on a regular basis to ensure your report is accurate and up to date.
It doesn’t need to be perfect either; be informed about what is considered a ‘good’ score by industry standards and aim for that. You don’t need to be perfect, just attractive enough in the eyes of suppliers and lenders so you can achieve the flexibility you need to do business.
The companies that provide this rating compile their information from publicly available sources — if there is an error, then there are processes in place to make a change. Sometimes even small inconsistencies can lead to a business being denied a loan or further credit, so it’s worth ensuring your business’ credit report is up to date. Once you access your business’ score, then you can take the actions needed to improve it or challenge the disputable items on the list.
There are legitimate reasons for payments being held back, like an invoice dispute — your score shouldn’t be affected as a result. Importantly, this doesn’t mean closing an account or abstaining from credit itself. Engaging in borrowing and responsible repayments will increase your credit score in the long run. One simple trick to keep in mind is to always keep personal expenses separate from business, as using personal credit doesn't count towards any improvements on your business credit score. While tempting, having crossover between business and personal credit can lead to unnecessary complications down the line
Acquiring a business credit card, or multiple cards for employees, will keep cash flow on the books and make clearing up any errors in your credit profile a simple task.
The easiest way to maintain a positive credit rating is to make sure all your payments are arriving on time. Scheduled and automated payment systems and accounting software go a big way in achieving this. Additionally, keep in mind who are the most likely to make reports — big lenders and suppliers will likely have arrangements in place to report this information automatically, so it is important to keep on top of any repayments or invoices.
Having a business credit card can solve any cash flow issues and can be a lifesaver in maintaining consistency with your payment history. This will not only alleviate any stress about incoming payments but give additional evidence of your businesses ability to manage lines of credit.
Your credit utilisation ratio is the percentage of available credit that is being used by the business. Ideally, this number stays low, demonstrating reliable repayments but also that your business retains flexibility when it comes to on-time payments or unforeseen bills.
Credit utilization ratio = your total debt / your total available credit limit
This doesn’t mean that you acquire credit to not use it, there are a few different ways to make this ratio look as attractive as possible to people financially appraising your business. The first is to pay bills when they arrive rather than letting them pile up at the end of the month. Similarly, you can increase or add a line of credit so that the ratio you are currently utilising is comparatively smaller. A tricky situation to avoid is to be aware of bills that arrive at irregular times of the month or year; making sure these are paid on time will again reduce the strain on your available credit limit.
If you have a regular or close relationship with suppliers, you can get a line of credit directly from them. This will add to your profile or reliability but also can be an avenue through which positive reporting is made to the organisations that determine your business credit score. Positive reporting will boost your score if it has been affected negatively or simply improve your score so it is more attractive, to begin with. Make sure to request for any supplier to report your regular and on-time payments so you can reap the rewards in the form of a respectable credit score.
Remember, some lenders look to your credit score as a key indicator for long term business success. Lifting your score in small and easy ways can improve the overall image and trustworthiness of your business.
We know small business owners work tooth and nail to ensure that their business is working as efficiently as possible. It can be easy while doing this to forget to attend to your credit rating.
But remember: a bad credit rating isn’t the end of the road. Ensuring, through this set of simple principles, that your credit score positively represents your business can make the pathway to growth an easy one to walk down. When mulling over options around credit rating, the simplest and easy solution is increasing your credit so you are always ready to meet your obligations. A business credit solution that takes all this into account is Archa!