By Paul Daine, Premium Collections
You know the score, don’t you?
Your credit score that is. As consumers, most people are proud of their credit score and look after it to ensure that if and when they may need a loan, a new car, credit card or a mortgage they will get automatic acceptance at the best possible rate. However, in business you may not review your credit rating or you may not even know you have one. Just like the consumer credit environment the business world relies on credit ratings, amongst other things, in their decision making process when considering whether to grant credit facilities.
Have you ever run a credit report on your own business?
If not, you should consider doing so for two reasons, firstly so you can see what information the credit reference agencies hold on your company, and secondly so you know what to expect your clients and potential clients to disclose to the agencies. During lockdown the government introduced a number of funding solutions for businesses to enable them to get through the uncertain months ahead. Local councils provided grants to businesses, the government guaranteed cheap business loans and other lenders supported businesses with alternative funding.
Bounce Back Loans were very popular as they were cheap, easily obtained with a one year payment holiday and five years to pay after that. However, those loans have to be paid back, and if you can’t or don’t pay your business credit rating could be adversely affected. It is therefore of great importance that you avoid negative information on your credit file such as Court Judgments, Defaults and Winding Up Petitions.
Be open and honest with your clients and funders and expect the same from your clients. Wherever possible pay your trade creditors on time or even a little early if you can. Also make sure you file any required documents such as Annual Accounts and Confirmation Statements at Companies House on time. The government allowed filings to be delayed during lockdown so it could be easy to forget about them now that moratorium has been lifted. Since lockdown was lifted the government have taken stock of their support for businesses, and estimates suggest that companies are now burdened with £70 billion of unsustainable debt, of which £20 Billion is attributed to the government guaranteed lending schemes.
With a second set of distancing restrictions announced for the next 6 months the government are providing further support to businesses, especially those that employ staff. However, the support is in the form of incentives, relaxations on paying back previous lendings and free advice rather than cold hard cash. It is therefore likely that there will be a sharp rise in business insolvencies. The Office for National Statistics estimates that one in twenty limited companies in England and Wales will be pushed into insolvency this year. Former employees of those businesses may decide to start their own businesses rather than search for alternative employment. Those new businesses will have no history or credit rating so, whilst supporting new businesses is commendable, you should proceed with caution if you are approached by a new business seeking credit terms.
Payment up front or at least a 50% deposit would minimise your risk and also show goodwill from your new client
Make sure you have written terms and conditions in place with all your clients, issue invoices as soon as a job is completed (or earlier if you can), and don’t be afraid to chase clients for payment. Sticking to these principals won’t guarantee business survival, but good practice will give you the fighting chance you need to survive and grow your business during these difficult times. If your company is profitable then its worth will increase, and therefore so will your credit rating.
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