Why knowing your customers’ credit scores can save you money, time, and quite a bit of stress
Good credit makes life loads easier, so many of us work pretty hard to make sure we stay in the green. It’s much the same for businesses. Having good credit makes it easier to get credit, cheaper insurance policies, and borrow as and when needed. A poor credit score can massively reduce your options and turn lenders off when you need them most.
To get a nice, full picture of creditworthiness, you need a few pieces of handy information:
- Companies House records.
- Any bankruptcies of County Court Judgements (CCJs).
- Current debts, including loans and credit cards.
- How speedily customers/suppliers are paid.
Each factor (whether it’s good or not so good) is added together to create an overall score, which lenders then use to decide if a business can raise finance with them. Any missed or late payments will be reported and reflected in their credit score pretty quickly, as well as repeated applications for credit over a short period, and filing late accounts to Companies House.
To keep your score nice and high, small businesses need to follow the same rules as consumers - make payments on time and only make applications for credit when you’re pretty confident you’ll be accepted. This last one is a lot easier now that some lenders offer ‘soft checks’, so you can find out if you’ll be approved before you make a full application.
Why you need to know all this
Knowing your own score is really useful, but what about everyone else’s? If you’re sending invoices out to clients, you want them to be paid in full and on time. Knowing how creditworthy they are up front can prevent a lot of stressful chasing, and even having to write unpaid invoices off.
The more information your business has, the smarter your decision-making. If you’re about to start working with a company that has a rock-bottom credit score, you really need to know. Solna has a pretty handy feature built-in (that’s right, it’s not just fancy-looking invoices), which shows your clients’ credit risk, credit limit, and a brief but useful summary of how creditworthy they are. If a company’s score is questionable, it can be a safer option to ask for part payment up front, or change your usual payment terms appropriately.
Current credit risk
A simple score out of 5 and an indication of how their credit has changed over the last few months. This line graph can reveal any sudden drops or gradual improvements, which gives you a good idea of how well they’ve been managing their finances over a longer period.
If a client is highlighted green, you can be pretty confident they’ll be a good payer, but amber and red can act as a warning.
The more a business has borrowed, the bigger their repayments. This should be judged next to their overall score and their timeline. If their credit risk keeps improving, but their credit limit is still quite high, they’re clearly dealing with their creditors well and being regularly approved for finance.
What you can’t see
You won’t be able to see a customer or client’s overall score, the success of any recent applications for credit, CCJs, bankruptcies, or who their current debts are with. This is all private information that only the specific lender and the business will be able to access. Their data is protected, but you still get the information you need.
Knowledge is power (and really, really useful)
If your business is going to put work, supplies, and money into a project, it’s really important you feel confident you’ll be paid properly. Up-to-date credit information helps you safeguard your business and vet potential customers before you start working with them.
It’s good to keep an eye on customers and clients you’ve worked with before too - just because they’ve been a quick payer in the past doesn’t mean they’ll always be easy to work with. If you stay updated, and check up on how their credit limit and creditworthiness changes, you can stay a couple of steps ahead of them and keep your cash flow nice and healthy.
Stay updated on your customers’ financial health and ability to pay before you go into business with them. Solna is free and full of super smart credit insights. Sign up now.
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