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 profile.
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 rating.
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 profitable.
