The state of the nation’s business credit scores

Trying to expand any business takes investment, but with many smaller businesses often lacking sufficient cash, securing additional funds can be the solution your business needs to grow and become more productive.  However, a poor credit score can limit your chances of doing this.

All businesses have a credit score ranging from 0 to 100.  The higher the credit score is, the better position financially a business is deemed to be in.  However, the closer a business’ credit score is to zero, the less likely they are to be offered credit.

Importantly, a business credit score allows creditors, banks and potential customers to decide whether they will offer you credit or to even go into business with you at all.  So, maintaining a healthy business credit score is the key for unlocking success and profitability for your business in years to come. 

But, how does your business credit score compare with the rest of the nation?

Location, location, location

Recent research from Experian revealed the state of the nation’s business credit scores, with the South West having the strongest average business credit scores in Britain, while London ranks as the lowest.

Organisations in the South West have an average business credit score of 54.7 – up from 53.4 last year. A business with this score is considered a below average financial risk. Postcode areas Hereford (58.09), Exeter (57.75), Taunton (56.60), Truro (56.51), Torquay (56.28) and Plymouth (55.98) all came out highly with the healthiest credit scores.

At the other end of the rankings, eight of the 10 postcode areas with the lowest average Experian business credit scores are in London, posting an average score of 47.2 out of 100. 

Age vs. credit score

More than 400,000 new start-ups have been established in Britain every year since 2008, yet fewer than half of these businesses survive beyond five years often due to a lack of finance options available to them. Establishing a strong credit history can take time, which not all start-ups have in their favour.

The research found that higher scoring regions correlate with a higher average age of businesses - varying from 8.29 years in London to 9.81 in the South West.  More established companies tend to have a more detailed credit history, translating into a more positive credit score. Meanwhile, younger businesses usually score lower.

It’s important for owners and directors of early stage companies to understand how they can strengthen their credit history. Paying invoices and filing accounts on time can help fledgling businesses to build their histories, while checking Experian business credit score is a sensible first step.

The Commercial Credit Data Sharing (CCDS) scheme will also help companies which have a limited financial footprint - by enabling enhanced access to their data, and therefore broadening the credit options available to small businesses.

Seven steps to improve your business credit scores:

1. View your business credit report to understand the positive and negative factors in your history, and plan the best path for progress.
2. Make a note of suppliers’ payment terms and plan payments so they are on time. Poor payment performance can indicate a business struggling to service its debts.
3. File annual returns and financial accounts on time. Making more information on your business available helps suppliers, utility providers and lenders to understand it and make appropriate decisions.
4. Avoid County Court Judgments. Should one occur, settle it promptly.
5. Keep an eye on your personal finances. Directors’ personal credit scores can be taken into account for new businesses when little information is available.
6. Appoint a director with a strong history of running companies and a good credit score to help boost your company’s standing.
7. Check and monitor the credit status of the companies you work with, so you can anticipate any supply chain problems before it affects your business.