Calculating an organisation’s credit rating is a delicate art. The calculations include:
- Companies House Records
- County Court Judgements
- Information from finance and credit providers
- Payment performance
Here is some more information about what these terms mean, and how you can optimise your credit performance:
Companies House Records
Every company needs to be registered with the government’s Department For Business, Energy, and Industrial Strategy (BEIS). This is part of the Companies Act 2006. Registration applies to:
- Public Limited Companies (PLCs)
- Private Limited Companies (Ltd)
- Limited Liability Partnerships (LLPs)
- Charitable Incorporated Organisations (CIOs)
Other less common types of company are also included. Registration means that annual public accounts must be made, and these inform the credit rating.
County Court Judgements
Occasionally companies fail to pay their debts, are taken to a small claims court by creditors and are issued a County Court Judgement (CCJ) ordering them to pay. If a business is found to be high-risk due to one or more CCJs, Companies House Records may disqualify the director. When this happens, there is a black mark against the name of the director, which can have a negative impact upon the credit rating of any future companies that he or she might start.
To keep this part of the credit sheet clean, the best strategy is to resolve payment disputes with creditors before they go to court. However, if that particular sheet is tarnished, focusing upon building good credit is helpful.
Information From Credit Providers
Credit providers will undertake a detailed history of financial performance. Being offered a loan will generally look good on paper. However, when securing a loan, the larger the deposit, the healthier the finance looks.
Credit providers will share this information, and it will be used to help other loan providers calculate their risk when lending to you.
Paying invoices on time pays dividends when it comes to credit rating. Cash flow is a challenge for many companies, but prioritising payments to loan providers and HMRC is an ideal way to create a strong credit profile.
There are many different cash flow options available. If you regularly struggle to meet payment deadlines, consider investing in strategies such as invoice financing (immediately releasing invoice payments) or asset financing (mortgaging an asset to release capital).
Assets come in many shapes and sizes. On an everyday level, most companies have assets in the form of invoices. Commercial buildings and machinery are at the other end of the spectrum.
Prompt mortgage payments, clear finance strategies, and transparent documentation will ensure that assets enhance a credit rating rather than denting it.
Building a good credit rating takes many years. Finance providers understand that for many companies this is a work in progress. There are many strategies designed to help improve cash flow and build a solid credit foundation.
Your accountant should also be able to assist you in ensuring you operate and even structure your business in a way that demonstrates your underlying strengths finically.
If you would like advice or support choosing the right financial product, Business Finance Solutions Ltd is here to help. Call us on 0845 5050 888 to arrange a free initial consultation.