From XU Magazine, 
Issue 31

11 Ways To Improve Client Credit Scores

Credit scores are a critical data point for lending decisions

Accountants and their clients can take several simple steps to maximise their chances of funding success.
This article originated from the Xero blog. The XU Hub is an independent news and media platform - for Xero users, by Xero users. Any content, imagery and associated links below are directly from Xero and not produced by the XU Hub.
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Having a high credit score is an essential factor for businesses being able to access finance. It’s important both in being able to be approved at all and ensuring they can access loans at the most competitive rates.

Credit scores are affected by many factors, including utilisation of existing credit limits, paying suppliers on time and maintaining up to date company information. 

Businesses with poor credit scores can boost their chances of accessing loans by taking a number of steps to improve their scores in advance of when they need to apply. While clients may not be looking for funds in the immediate future, their accountants should try to improve their chances of being approved by working with them ahead of time.  Make it a priority to ensure their data is accurate and gives lenders confidence in their ability to pay down debts.

What are business credit scores, and why are they important? 

Business credit scores are a rating given to businesses that indicate how likely they are to be able to service debt or finance facilities effectively.

Scores are built up over time across data, including payments history, utilisation of overdraft facilities, existing debts, recent applications for finance, Companies House information and publicly held information such as County Court Judgements (CCJs).

Credit scores are important as they indicate the creditworthiness of companies and are used by banks and lenders when making decisions related to finance applications. 

Credit scores are not universal, but most financial services companies partner with one of a handful of large Credit Rating Agencies (CRAs) such as Experian or Equifax.

In simple terms, the higher a business’s score, the more likely they are to be able to access finance at a competitive rate. 

Maintaining a low credit score can be highly detrimental to businesses’ cash flow by limiting their borrowing ability. In worst-case scenarios, this can lead to them failing if they cannot pay bills on time. 

Unfortunately, these agencies don’t fully reveal how they grade and weight their scores. However, if you work with your clients and follow our tips below, they’ll put themselves in the best possible position to get their finance requests approved. 

Ways to improve your clients’ credit scores

1) Ensure bills are paid on time

It’s not rocket science, but getting clients to pay their bills when they’re due will boost their scores.  A negative payments history suggests companies are not organised to pay invoices on time or are facing cash flow issues  – a huge risk for lenders. 

There are a number of new payment automation tools (Modulr, Telleroo, Tipalti etc.) on the market that help streamline pay runs. It may be worthwhile to work with one of these vendors and offer payrun services to clients. This will get them into good habits and also be a new revenue stream for accountants. 

2) Maintain sufficient cash to cover direct debits and standing orders 

It’s easy to forget about upcoming direct debits and standing orders that are taken automatically. Businesses should maintain sufficient balances or have approved overdraft facilities in place to cover these.

3) Clear CCJs promptly

If clients already have a history of late and non-payments, they may be holding CCJs. These are issued after a company fails to repay a debt and are stored and recorded under their credit history for six years before being removed. 

However, CCJs paid in full within one move are removed from credit files as if they never existed, so they should be promptly satisfied at all costs. If your client gets into a situation where they’re issued a CCJ, make sure they know this.

4) Use cash flow forecasting tools 

Working with clients to implement cash flow forecasting tools will give them accurate and full oversight of their working capital.

This is useful to foresee any potential cash gaps and make sure they’re not relying on overdraft facilities too much. Additionally, clients may have bank covenants in place that require them to maintain cash balances above a certain level. It’s worth making sure that they’re on top of any of these and going over any existing policies.

Cloud cash flow vendors make it easy to generate forecasts by connecting directly to leading accounting software vendors, such as Xero,  to sync real-time balances. They’re relatively simple for accountants to implement and convenient for business owners to manage

5) Update info on Companies House and consider filing full accounts 

Make sure up to date information is maintained on Companies House. For example, if the registered address of a client changes, this should be updated on Companies House quickly. Failure to do this could result in CCJs being sent to the old address and not getting picked up. 

Old charges registered at Companies House, such as debentures, should be removed. This will overcome the risk of being turned down for finance as some lenders are wary of debentures already being in place. 

Clients may consider voluntarily filing full accounts, as opposed to micro-entity accounts. They may take more time to complete but can lead to a better credit rating over time. Accounts should be filed on time as submitting after their deadline passes can indicate a business is facing financial difficulty.

6) Show a growing balance sheet

Where possible, clients should file a growing balance sheet year on year in their annual accounts. This suggests strong financial health and will enhance a number of key ratios related to lending decisions.

7) Ensure personal finances are healthy

It’s also vital for business owners’ personal finances to be in a good state. Owners should pay all of their personal bills on time and service their debts.

This is even more relevant for startup businesses that will have less financial data (i.e. who may not have filed first-year accounts) on which to base credit decisions.

8) Check your credit score

Companies should sign up for alerts and changes to their own credit scores with the main agencies and correct data and information that is inaccurate or out of date. 

9) Keep track of the credit scores of partners 

Key customers and suppliers should have their credit scores monitored as if they fall into financial difficulty, this could also negatively impact clients.

10) Collaborate with suppliers

Clients can positively impact their credit scores by asking their suppliers to share feedback and positive payments data with credit reference agencies.  

11) Boost your business finances

Businesses should access finance strategically to manage working capital better while reducing their chances of being turned down and leaving a permanent mark on their credit files. 

Applying for finance with multiple providers who do hard searches and getting rejected will make it difficult to access finance. Do your research and choose your lender wisely. At MarketFinance we’re here to support the small steps, giant leaps and everything in between. We can fund small businesses with loans up to £500,000, and are still offering the government-backed Recovery Loan Scheme with loans up to £350,000 until it ends on 30 June. 

It takes minutes to apply and your clients will hear back within 24 hours. If they’re approved, funds land into their account in less than 60 minutes of signing. Find out more here.

Helping your clients boost their credit score can help them reach higher

Improving a client’s credit score is in the interest of both accountant and the client. Having conversations about this now will increase the chances of securing funding when your clients needs it, helping them get on with the things that matter: with the right funding, they can pursue growth, manage their ongoing needs and take that next step.

Once a loan or other facility is in place, accountants can further advise their clients on how to manage these funds and forecast for future needs.

Why leave it there?

To find out more about MarketFinance and how we support your accounting firm

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