Simple tips for SMEs to improve their credit rating - Business Works
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Simple tips for SMEs to improve their credit rating

S mall businesses are missing out on credit from suppliers through ignorance of what will improve their credit rating.

Philip King, CEO ICM

"While consumers increasingly understand the importance of their own credit ‘score’, smaller companies fail to understand even the simplest actions that would turn a ‘no’ into a ‘yes’ in the granting of credit," says Philip King of the Institute of Credit Management (ICM).

"Credit is an essential business tool," he says, "but it is not a given right. Just as a consumer is given a credit ‘score’, so too a business is given a credit ‘rating’ - the term used by the credit reference agencies to assess a company’s ability to pay its bills. A positive rating gives confidence to suppliers – and especially new suppliers – that you are a company worth doing business with. A poor rating, conversely - as with a poor consumer ‘score’ – can seriously impact your company’s future access to credit."

It is for this reason that the ICM has launched a new Guide entitled ‘Five simple steps to improve your credit rating’. The ‘five steps’ include:

  • Avoiding negative information - find out about outstanding CCJs, petitions etc and clear them.
  • Being open and honest – the more information you provide about your business the better. Lack of data can often be interpreted negatively.
  • Maintaining a trading track record - Agencies are looking for a healthy balance sheet and good supplier relationships – in short, pay your existing suppliers on time.
  • Keeping Filing up-to-date – lateness in filing accounts invariably gives the wrong impression.
  • Retaining profit in your business - it demonstrates an ongoing investment in your business, and therefore enhances your credit rating.

The Guide shows that there are, of course, many other ways of improving ratings. All businesses should maintain a positive net worth, for example, and help themselves by filing a profit and loss account that explains movements and helps prevent wrong assumptions being made; positive working capital is similarly important, since it is a vital measure of cashflow; and information such as the nature of the business and VAT registration numbers should be readily available to ensure your business is easily and accurately identified.

But above all else, businesses can help themselves by creating a dialogue with their suppliers, Philip King says, "As well as talking to their suppliers, companies should also talk to the experts – the credit reference agencies – about any specific requirements they may have."

"Every agency and credit-granting organisation uses slightly different decision-making methodology and criteria, so it can pay – quite literally – to know what type of information will help improve your credit rating, and so help improve your business performance."

A copy of the guide can be downloaded from (4Mb PDF file):

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