With the UK experiencing soaring energy prices and interest rates, we’re all worried about the increased costs our businesses will face in the near future.
While we unfortunately have little control over the economic forecast, we’ve got some good news. There is something you can influence to save on costs: your business credit score.
Every business in the UK has a credit score. However, two-thirds of the country’s business owners have never checked what their credit score is and are unaware of the major role it plays in their financial success (the fact you’re reading this article means you’re already more aware than most UK businesses!).
You probably know the repercussions a bad personal credit score can have; it affects your ability to get a mortgage, lease a car, and even start a mobile phone contract.
Did you know your business credit score carries the same significance? It can help to think of it as a financial snapshot of your company. Institutions, including energy companies, use it to assess your business’s financial position and its level of risk when it comes to lending money, obtaining supplier credit, leasing premises and securing contracts.
In other words, a high credit score means a business is seen as low risk and will be able to access business loans at a lower cost to reflect this.
A good credit score will help your business secure a better energy deal and lending options
As the UK braces itself for the energy crisis, we know you must be feeling anxious about keeping control of your overheads – especially when it comes to power. Without a good credit score, energy companies will see your business as high-risk which means you have trouble accessing more favourable tariffs and you’re limited to the more costly ones out there.
It could even mean you have to pay for energy in advance via an up-front deposit to renew your contract, causing unforeseen disruption to your cash flow. A strong credit score will also significantly improve your chances of securing loans, as it makes you a far safer bet in the eyes of investors.
So how is your credit score actually calculated?
Based on a range of factors relating to your financial and behavioural situation, your business credit score is rated from 0-100 (0 being very bad and 100 being excellent) or across an alphabetical scale (with E being very bad and A+++ being excellent). Businesses with a score of 75 to 100 or A to A+++ will stand the best chance of being eligible for the most favourable loan rates. If you’re not sure of your business credit score, we recommend finding out for free here.
How do you go about improving your credit score? The good news is it’s never too late to start. It’s also important to mention this improvement won’t happen overnight, but we’ve put together some easy steps every business can follow to start strengthening their credit score now:
1. Put your business on the map
Although your business credit score is calculated using a range of financial indicators, it’s also based on some key behavioural information – including your business’s digital footprint. Make sure your business has an informative website, that it’s registered with your local chamber of commerce, and all recorded information like your company phone number and bank account is up to date. We also recommend your business joins guilds, societies and associations related to your field of operation.
2. Make sure you have a separate business bank account
It’s important to not blur the line between your personal finances and those of your business. We know it can be easy to do – especially if you’re a sole trader – but banks and lenders don’t look favourably on it. Dedicating a little time to separating your finances will really pay off in the long run (and as a bonus, it will make calculating your taxes far easier!).
3. Use credit to your advantage
Opening credit accounts with regular suppliers who you know you’re able to pay consistently and on time can help strengthen your credit score. We especially recommend this if you’ve had trouble meeting supplier payment dates in the past, as this can go a long way to turning your credit score around.
If you don’t have one already, consider taking out a company credit card to use for legitimate business purchases only. Establishing a credit line that demonstrates your ability to pay on time and within the limits will really help build a positive credit score.
Keep in mind that asking for too much credit – especially if your company is young – can hurt your score. If you apply for finance and get turned down, we know it’s tempting to reapply quickly – but making repeated unsuccessful applications could set you back further. It’s better to hang in there and take the time to improve your score before you apply again.
4. Be mindful of filing on time and accurately
Making sure you always meet your filing deadlines is a simple way to keep your credit score in check. This applies to filing your accounts with Companies House, as well as tax and VAT returns. Meticulously checking your accounts to ensure they’re as accurate and error-free as possible is vital. We know it can feel like a chore, but dedicating time to doing this now will save hassle down the line, as any subsequent amendments could damage your credit score.
5. Ensure you’re paying bills on time, and look at credit where possible
With costs increasing across all areas of your business, we know you may be feeling the squeeze when it comes to paying bills on time. In the short term it might be tempting to ask for an extension on these payments – but your credit score will suffer, meaning your business pays more in the long run.
If you’re unable to pay on time, consider finance options to cover bills – but make sure you keep up with these payments or it can quickly have knock-on effects on your credit score. It can be a vicious cycle, but having a clear understanding of your cash flow will really help. If you’re struggling with VAT payments, VAT finance could be an option to help out here. Keep in mind your credit score will also take into account any late payments on your business’s mobile phones and utilities, so ensure these are also paid on time.
6. Have a quarterly cleanup of your accounts and public information
Make sure significant changes don’t slip through the cracks by scheduling a routine tidy of your accounts every few months. Any published details of your company address and registrations must be updated. By putting this in your calendar for every quarter, you can:
- Close any old accounts you’re no longer using
- Update Companies House with any changes in your business
It’ll only take a short amount of time to do this every few months, but making sure your business isn’t sending out conflicting information will benefit your credit score.
It’s also necessary to regularly check your credit score report for any errors. While the UK has government rules to protect you from false reporting on your personal credit score, there are unfortunately no such laws for businesses. It falls on the business owner, or their accountants, to take the time to check this (we recommend at the same time you have your quarterly cleanup).
Remember: building a good credit score takes time
In the current economic climate with rising costs, we know you probably want a quick fix to your credit score – but it’s a marathon, not a sprint. It can seem like a daunting task, but having a little-and-often approach to the steps above will really reap the rewards for your business in the long run.
However, you don’t have to do it alone. We know how much you’re juggling as an ambitious business owner, and these tasks can easily get pushed to the side or completed in a last-minute rush. The Starfish team can help you strengthen your credit score, giving you the support you need to feel confident your business is set up for those long-term gains. If you’d like our help improving your credit score, get in touch with us.
