Every business has a credit score so in order to improve payment terms you need to know what factors go into that and then understand how suppliers are interpreting that information and using other data points to make their decision. The goal here is that if you have an above average credit score you should be able to get better than average payment terms.
If you have a specific thought in mind about your credit report, use the links below to jump to a section.
- Know what’s in your credit score
- Your history
- Know your limits
- Is your business likely to repay?
- Keep implementing actions
- Check your outcomes & validate your work
1. Know what’s in your credit score
All limited businesses have a commercial credit score which is made up of information submitted in your annual accounts to Companies House, credit information from Credit Reference Agencies, your previous payment performance history along with the personal credit information of the company directors. If you run a non-limited business then any credit decisions will be based on your personal credit information as the company owner.
Actively managing your personal credit score is obviously helpful for your own needs but for business owners and directors like you, the benefit of doing this is two-fold as it also impacts your business’s ability to get finance and negotiate payment terms.
Paying personal credit card and utility bills on time and staying within limits is all basic stuff but demonstrates your ability to manage credit. The weighting of the analysis between your company credit information and personal credit information is largely driven by the age of your business and the amount of company information available. Where there is little or no information about your company there will be a greater weight placed towards your personal credit information.
So if you positively manage your personal credit information you should apply the same rigour to your business. Ensure you pay bills on time, don’t exceed limits on company credit cards etc. keep a level of liquidity in your business and also pay invoices on time. Payment performance data about small businesses so whether you pay your utility and telco bills on time is all fed into the credit reference agencies as a factor that demonstrates your business’s ability to pay back what it owes.
As mentioned in the finance report section (link) providing information to Companies House that demonstrates growth or improvements in your business’s financial position can all help push up your overall score so don’t see your annual accounts as a chore, use them as an opportunity to demonstrate positive business performance.
2. Your history
Previous evidence is an indicator of future performance. If you have other directorships or previous business then ensure that this paints as positive a picture of you as possible. This is where the link between you and your previous businesses can have an impact. Outstanding CCJs or non-payments from previous companies whether they are still operating or not is going to raise alarm bells with suppliers. Resolve these if possible or at least ensure that your dis-association to the business is clear.
3. Know your limits
The level of your existing credit limits will be a factor that determines the structure of any payment terms so if you need to make a large order way above your existing terms be mindful that you may need to make a large up front payment with only the remaining balance on invoice. Demonstrable evidence of previous payment performance by your business will be critical for these types of negotiations. Ideally, if you can demonstrate previous evidence of paying that specific supplier in full and on time then the opportunity to extend your credit limit with that supplier increases.
4. Is your business likely to repay?
This is the only question suppliers want the answer too and it ties together all three of the previous points. Your suppliers want to give you the terms you want because they want to make the sale, however, they need to know they are likely to get that money.
If you can actively manage the elements that make up your business and personal credit scores, you pay your bills on time, have evidence of repayment and have built a level of trust with your suppliers then you should be able to go onto payment term negotiations in a position of strength.
Ultimately the decision is made by the supplier when they want to get paid but by getting a Handle on your business credit report you can be more confident that the data and evidence available points favourably towards your business.
5. Keep implementing actions
Managing and improving your business credit score is an ongoing process and one that can provide a level of financial flexibility however it takes time, particularly if you are coming from a position of relative weakness.
Based on the data in your Handle credit report you will be given a list of actions to help take you forward. These actions are bespoke to your business and are there to link you with resources and information that can help you on the path to success.
6. Check your outcomes & validate your work
Your Handle credit report refreshes each month, making it easy for you to check how the actions you’ve taken have affected each of your individual metrics and your overall business credit score. You will be notified each time your report refreshes, making it a reliable and easy way to track your progress, identify weak points and keep on top of your credit score.
If you have any questions about any of the data in your Handle credit report, please email [email protected] with some details and we’ll take a look for you.