Most of us are familiar with credit scores, essentially a 3-digit number that shows how likely you are to be accepted for credit. The higher the rating, the more likely you are to be accepted for a credit application, whilst the lower the score the less likely you are to be accepted. A credit score is based on financial information such as payment history, amounts owed, credit history length, credit mix and new credit and is used to formulate a credit report.
Whilst it’s extremely common for individuals to find out, or need to find out, their credit score in order to apply for something such as funding or a mortgage, many are unaware of a business credit score. This follows the exact same premise as a personal credit score, however a business’s credit score is a determined metric of a company’s creditworthiness. This is made up of a number of factors to calculate the financial position of a business and its level of financial risk.
We break down just how business credit rating scores can be used, the benefits of obtaining a business credit report, and how Nordens can help businesses obtain credit checks for their own customers, clients, suppliers or any other businesses they wish to source.
What Is A Business Credit Rating?
Just like a personal credit rating, a business credit rating compiles certain financial information to determine your creditworthiness. A business credit score is often used to see whether they are eligible for credit, funding, additional finances or any other forms of investment. However, it can also be used as a tool to help businesses to manage cash flow.
It’s very common for businesses, before entering into long term contracts with new suppliers or clients, to run a background business credit check. This is in order to gain an insight into that business’s credit rating and whether or not they’re reliable to work with. It will immediately flag up any concerns or previous affairs that may require your attention, protecting you from entering into a working relationship with a bed debtor.
Likewise, it’s also highly likely they’ll simultaneously run one on you too, so it’s definitely worth doing your research and making sure you’re as creditworthy as can be. Many industries such as construction for example, rely heavily on business credit due to complex supply chains. No matter what size your business is, or the sector, obtaining an in-depth credit report and rating is highly recommended as it will put you on solid terms with suppliers and clients who will be safe in the knowledge your business is reliable and creditworthy.
What Happens If A Business Credit Rating Is Low?
Having a high credit score rating is extremely beneficial for your business as it puts you in a positive light in the perspective of suppliers and clients. A bad credit score rating however can have dire consequences for your business, not least the capacity to access funding and additional finances.
If, however, your credit rating score is low then it opens a can of worms which could prove detrimental to your business. You may as a result be offered higher rates which could negatively impact your finances and capacity to grow. Having a poor credit rating is commonly one of the main variables that causes a credit application being rejected.
A credit rating is calculated by credit reference agencies, allowing companies to assess your behaviour if they choose to lend to you or do business. Crucially, it will contain information related to how you have previously used credit, for example how many lines of credit you’ve already got, if have missed payments, or if credit limits have been exceeded.
Essentially, the lower your business credit rating the less attractive you will be to not only lenders but also suppliers and other businesses who you may need in order to operate fully, as well as potential clients.
Can Nordens Help With Sourcing Other Business’s Credit Ratings?
Obtaining a business credit rating and report can be a costly and timely process, whether that be your own or you’re looking at another business. Fortunately, at Nordens, we can take care of this for you. Our new credit rating service allows us to do the credit checks for businesses as well as their own customers, clients, suppliers or any other businesses related.
This means you’ll be able to extensively research and gain a solid insight of the people who will make your business tick, ensuring they’re reliable, trustworthy and creditworthy. If you’d like to know more about our credit rating service then please contact Nordens’ Company Secretarial Manager, Natalija Rynkevic, on natalija@nordens.co.uk or by calling 020 8530 0720.
We hope this has outlined to you the significance and importance of a business credit rating score and the benefits it can bring your business. If you’d like to know any further information on our business credit rating service, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.
