What does a business credit score say?
What is a business credit score
Around nine months ago one of our New Business Executives had a conversation with a Finance Director from another business to discuss providing our services as a debt collection provision. The FD stated, “in our industry all customers pay on time, and this has never been an issue and won’t be in the future.” We sent them an email outlining our services in case they ever get a problem in the future so they could give us a call. Yesterday, we received a telephone call from the same FD stating that they had minor problem that needed resolving, which turned out to be £10k in default judgment for non-payment of invoices.
In this case the FD’s business had allocated a credit limited after completing their usual credit checks. The debtor business had a great looking website, a strong social media presence and talked about how successful their business was whenever and wherever they could. However, over the course of a year they started paying around 70% of each invoice before payments stopped altogether. The creditor began their own internal credit control process chasing the late payments to no avail.
So today, after we completed a Free Debt Appraisal, it became clear that there was something not quite right with the debtor’s business. They had a great online presence but when we completed due diligence on the creditworthiness of the business, red flags had clearly been missed previously.
After reviewing the credibility of this business, it seemed great on paper but has little credibility when we looked at their business credit score. Offering credit should always be based on a business’s credit score, the same as any bank lending funds to an individual is based on their creditworthiness. A business credit score is one of the indicators used by banks and lenders in assessing the risk of lending to your business. Business scores generally range from 0 to 100. A business will have a good business core if it pays its bills on time, stays out of legal trouble, and doesn’t incur too much debt.
Given that chasing late payments, write off or debts and invoice disputes are time-consuming and expensive. In the current climate, businesses need to make sure they are completing their due diligence and checking customers business credit scores regularly. Therefore, a robust and effective credit management system is imperative to staying ahead of the game and protecting your business from bad debts. Placing all customers on a monitoring service grants you the ability to receive instant notifications, allowing you to view changes to your portfolio, on a daily, weekly, or monthly basis and allowing you to manage your credit more effectively.
For those who are reading this thinking as the FD did, this isn’t a problem for my business then you need to consider that, at present, there is currently £23.4 billion worth of late invoices owed to businesses across all industries and regions of the UK. Late payment of invoices is not limited to certain industries and affects businesses of all sizes.
The necessity for effective credit management cannot be understated. The longer an invoice is left outstanding and unpaid, the bigger the risk of this being written off. Implementing effective credit management in the current economic climate should be a priority for every business owner as it plays an important role in the sustainability and strength of any business.
