1. Maintain a trading track record.
Firms and partnerships are judged on different criteria from a
private limited company, because the principal(s) are personally
liable. So, in most cases, a successful trading track record and
good supplier relationships will yield the credit required.
2. Provide detailed information.
For unincorporated businesses, the more information that credit
agencies have, the more comprehensive the credit rating will be.
Often, the lack of information can have a negative impact on your
business's credit rating. Do not hesitate to contact your credit
reference agency and disclose to them information that can improve
your credit rating - for example, management or interim accounts,
trading information, etc. Sharing your monthly management accounts
could be a good way to influence your own business credit rating
3. Invest time in the validation process.
A credit reference agency will be undertaking the enquiry on
behalf of their clients and they are seeking to validate your
credit terms. Information such as the nature of the business and
VAT registration numbers (which give an indication that turnover is
above a certain threshold) form part of this process.
4. Keep your filing up to date.
Don't delay in recording changes of directorship - ensure its
within fourteen days of the change and also keep within the
statutory filing requirement dates which are within six months of
the financial year end for a public limited company or within nine
months of the financial year for a private limited business.
5. Determine your net worth.
This is the sum of the issued share capital and the profit and
loss account. Negative net worth is a hazard to ratings and
movements will affect your credit rating. File profit and loss
accounts, so that any downward movements in the net worth can be
seen to be drawings or losses. The natural assumption is that
negative impact on the net worth of a company is due to losses, if
there are no other explanations. However, a drop in the value of a
profit and loss account can also be caused by dividends being taken
out, which exceed the profit for the year.
6. Retain profit in your business.
This will increase your net worth each year and shows that more
is being retained and invested in the business, which gives a
favourable prospect for a good credit rating.
7. Review your share capital.
How much credit would you offer to a company where the
shareholders are only prepared to put two £1 shares at risk? Have
you, as a director or shareholder, loaned the company money which
you have no intention of redeeming? Consider capitalising the loan,
this will increase the net worth and most likely will have a
positive impact on the credit rating.
8. Record borrowing terms accurately.
Remember that your supplier is interested in ascertaining
whether your company can repay them. Bank loans, other than the
portion falling for payment inside one year, which are included in
overdraft values, will have an effect on the working capital
position. Working capital is a measure of cash flow, so it follows
that negative working capital (where current liabilities exceed
current assets) will be taken into consideration for a credit
9. Maintain good trading relationships.
Pay suppliers within agreed terms - in today's economic
environment more and more trade payment data is used by credit
agents as a guide to current credit worthiness.
10. Avoid negative information.
County Court Judgments, Decrees, petitions for winding up - no
matter what the outcome - will have an impact on your rating. With
the current market conditions and in the prevailing 'rescue
culture', there are more avenues for mediation than ever before. It
is correspondingly interpreted as a sign of financial stress when a
small company incurs a series of County Court Judgments.
11. Be objective.
Consider for a moment, exactly what information is available.
The creditor needs to be able to judge whether they will eventually
get their money and they look at various pieces of information upon
which to make this judgement, including, but not exclusively a
credit reference agency report. Credit policies are not set by
credit reference agencies; they are set and run by the individual
supplier. When credit is key to a transaction, enter into a
dialogue with your supplier to enable them to have as much data as
possible, in order for them to make an informed decision.
Note: It is equally important to monitor the
financial stability of an existing supplier or to see what credit
rating was given to a new customer's business. Whether you do
business in the UK or internationally, you need to reduce your
exposure to risk and ensure that your business relationships are
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