Archive for category: Cashflow

Unfortunately, we can’t supply you on credit today due to instructions from the company credit controller, message from your supplier. Does this sound familiar? I am sure your immediate response will be why? If the supplier is kind enough and wants to maintain the relationship, they may drop the bombshell and inform you as to why their company sees your business as a big credit risk. In simple terms, you are not covered by their credit insurers. Meanwhile, you have customers waiting to buy from you. Not a nice experience. This reaction from suppliers is usually not personal, although it may seem like that at the time. Your business can be ahead of the curve and get their act together by following the steps below.

1. Check your own credit scoring through credit checking agencies.

There is numerous software that checks and keeps the company updated with their credit scoring of the business. The software can also check on the credit scoring of clients before they sell to them. In order to boost and maintain your credit rating, the business has to pay your suppliers on time. Paying suppliers on time can be managed effectively if customers also pay on time. The scoring can help you see areas affecting your score and offer help on how to work on the areas you have fallen short. See the report through the eyes of your lenders and what they look out for. Check any information that isn’t right about your business and ask the credit agency to correct it. Be prepared with answers when you are asked any questions regarding the finances of your business. Set up notifications and alerts when significant changes affect your credit scoring. Act quickly to reduce any impact on your business before lenders get any wind of it. Get ongoing support to ensure that your business finances stay at its best. To have a no-obligation discussion about maintaining your credit score please get in touch.

2. Open a business account in your business name

Some small businesses do not have business accounts, but rather continue using their own personal account. Good practice of a business recommends that a business separates personal transactions from that of the business. It makes it easier to analyze the business profit and distinguish business transactions from personal. It also protects your privacy when it comes to the public scrutinizing your business account. “Do not mix business with pleasure”. Business bank accounts are easy to set up, opening an account in the business name means any good references associated with how the accounts is run will boost the credit rating of the business. Banks offer to change free services for a limited period to entice businesses to save with them. Go get a business account immediately if you do not have one. Get in touch with us if you need help to set one up. Make sure the business account is in the business name. Overdraft on the account will be displayed on your credit scoring and not your personal bank account if you have a business account in the name of the business.

3. Taking credit improves your credit scoring

Endeavor to pay on the due date if you have any outstanding debts, to prevent incurring extra charges which are costs to the business and will reduce your profit. Take up a business credit card and use it purposely for business purchases. Set up a quick direct debit and pay off the balance when it is due. With our intelligent software, you can link your business credit card statement to the smart bookkeeping software. This way you will easily code transactions in your financial accounting system and not miss an entry. All your business costs are captured, the days of failing to account for some of your business costs is now a thing of the past.

4. File accounts on time

In the UK at the end of your financial year, you have 9 months grace period to file your accounts. So to the lender you have had plenty of time to file your accounts. Any delay signals a problem or you just couldn’t be bothered. The credit agencies cannot update the financial health of your business or the credit scoring if they can’t see an updated version at companies house. This is especially important when your financial health has improved. You will score better if you can get the accounts filed on time updating your lenders of any improvements. For businesses thinking about going for a huge bank loan, it will be worth employing the services of an auditor to certify the fairness of the accounts. This gives lenders the needed confidence that the reported finances can be trusted. The credit scoring of the business will also improve as a result.

5. Pay your bills on time

Delays in bill payment are becoming a problem in the UK. This has led to the involvement of the Government. From April 2017 large companies in the UK have a duty to report publicly on their payment policies, practices, and performance. Soon credit agencies will have access to accurate data on this information and it will be part of their criteria for credit scoring. Delays in payments are seen as a sign of weak cash flow. Pay your credit card bills on time. Set up a direct debit to prevent delays and charges. Worries about fraudulent transactions through your bank can be mitigated by setting up a link from your credit card and bank accounts to our smartbooks. There is the likely chance that payments will be processed faster by the bank if fraud is detected early.

6. Keep all your bank and credit card accounts in check

All bank accounts including credit cards should be kept in check. This way you have full control of the transactions of all your transactions. Cancel any idle bank and credit card accounts. Simply get rid of it. There is no benefit associated with having many banks or credit card account. It is usually difficult to keep it all under check. There always new and tempting promotions advertised by the banks to get market share. Keeping numerous bank accounts may weaken your credit scoring. It sends the message that you need more money to finance your debt or get into future debt. Review the benefits you get from your existing banks and move to favorable banks if they offer what you want. The disruption of Fintech banks has made traditional banks more competitive these days which is good for the customer.

7. Limit your credit applications

Any rejection from a credit application looks bad on your scoring. Numerous applications make you look desperate for money. Resist from applying for credit immediately you are rejected. Most lenders use the same credit agencies. In the unlikely situation that you are not successful in your credit application, find out why you were rejected. Check your credit scoring and drill into reports published about the financial health of your business. Look out for any reported errors and Identify them immediately. Any errors on the company can be corrected by contacting the credit agency. Do this before you proceed to apply for another credit. Lenders look at the credit scoring of different agencies, it will beneficial to find out which agency’s credit scoring your lender is looking at. Try to see your own scoring through the lens of the lenders.

8. Ensure that customers pay on time

The health of the business is reliant on the cash flow of the business. If your customers don’t pay you on time you may be forced to apply for a loan to meet your daily operational costs. I have seen clients who are prepared to leave their £100k overdue receivable balance and go for loans to pay suppliers. It is highly important to be in control of your credit. Having a good credit controller or bookkeeper who will take ownership of customer payments is important. You want your customers to pay on time so that you can pay your suppliers. Collecting outstanding debt quickly prevents debts going bad. You don’t want the debts to become a cost to the business instead of cash inflow. Online business has been successful because of the no credit facility they offer and so has retailers. Operating a business that offers credit is not an easy task, ensure you have an organized bookkeeping system which will easily record sales anywhere, generate credit notes, allocate payments and keep customers updated on the state of their account in real time. You will gain a lot of trust from your customers if you consistently update them on the state of affairs.

9. Check other credit agencies

The UK uses 3 main agencies.

i. Experian

ii. Equifax

iii. Call credit

Your lender may be using one of these to check your credit scores. Unfortunately, the scoring of the agencies can differ from agency to agency. Directors can also check their credit scoring from the agencies and register to keep themselves updated with their credit scoring. The good news is there is software that consolidates all the data from the different agencies into concise reports that depict the health of the business.

10. Check terms of contracts and loans

The emergence of loan sharks in the business world is been prolific in recent times. The loan sharks are capitalizing on the gaps created by the traditional banks who are still tight on lending money to small business. Spend time to read the interest payments on these loans and make sure you are comfortable with the payments. I have recently seen loans with 30% plus annual interest payments. I have also seen some smart offers where the company pays you an upfront amount and take payments from your monthly credit card receipts. It is still worth working out the interest payment. Taking loans is not just about receiving lump sums, companies need to evaluate how much they will pay back from the loans received. Will you make enough money from your investment with the loan? Can you get a competitive rate from another provider?

Conclusion

The points mentioned shows there are steps in place to ensure that the business credit scores are kept in good standing. A good business credit rate keeps your suppliers happy and gives them the confidence to do business with you. Good credit scoring can get you ahead of your competitors. Not all bad credit scores are the fault of the business. All credit scores need to be investigated upon and the necessary measures need to be taken to rectify it as soon as possible. Ensure that you have the right systems in place for good credit scoring by getting in touch with us for a no-obligation meeting.

By Joseph Nsiah

Parizma Systems

Efficient tools for Business

PS. This also applies to individual credit scoring.