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How to effectively use credit data for your business

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Credit data can be a powerful tool for your business. It can help you understand a number of things about your industry, the ecosystem your business is part of and the companies you are competing against.

It can also allow you to understand your own company’s financial situation and how it is perceived by prospective investors or even potential members of staff.

Supply chains can benefit greatly from effective financial research utilising credit monitoring and the data that becomes available with this kind of insight. Importantly, such data does not discriminate by size.

Smaller businesses can engage just as much as global corporations. With this in mind, it’s important for you to engage with credit data regardless of the size of your business so as not to leave any stone unturned in a thorough business intelligence analysis.

With the high street suffering and high-profile businesses seemingly falling into administration on a regular basis, now is the time to understand the financial implications of this data.

Not reviewing your credit data could lead to poor decisions being made that can have severe negative consequences later down the line.

Read this article to learn about credit scores, how they can change and how to improve them.

What is a credit score?

Credit scores can understandably be a confusing concept to those who are unfamiliar. However, understanding them can help you inform various business decisions.

A credit score is a number given by financial data analysis companies, which helps businesses to understand how creditworthy they, or their competitors, are in the landscape.

When you are a newer business, your credit score is naturally going to be far lower than a larger organisation due to a vast difference in credit history.

Company credit score vs personal credit score

The credit score of your business differs to a personal credit score – the latter relates to things such as your own payment history through credit cards and loans, for example.

The same type of logic applies to both though and allows you to understand the financial implications of doing business with someone or another business.

Business credit scores consider a number of financial key performance indicators (KPIs), including how prompt a company’s payments are made to suppliers across the chain.

Directors can also have an influence on a company credit score as their financial and business history will be scrutinised alongside any financial information to produce a full picture for analysis.

Every credit score company scores differently. For the UK specifically, different companies will have a different scale.

Here’s an example:

  • A credit score company may base the score on a scale of 1 to 100 – this is a commonly used metric to check a company’s chance of insolvency.
  • To break it down a bit further, a score of 50+ within the data would highlight that a business is deemed ‘low risk’.

If you’re looking at your company’s credit score, you can benchmark it against other companies in your industry.

How can a credit score change? 

A question most business owners ask. Whether you are scrutinising your own company’s financial profile or looking at a new potential partner, investigating the reasoning behind a sudden decline in credit score can provide invaluable information. All of the following can impact a decline in credit score:

  • Missed payments to suppliers
  • Decline in financial figures
  • Adverse information
  • A decline in director performance (if a director has failed in another business).

Monitoring the above will give you insights into a company (including your own if you’re looking at these points for your business) and you will be better placed to understand what working practices they have when it comes to payments, which in turn can help your business.

Tackling these crucial aspects will consequently improve your credit score but the following are some key things to consider if your numbers are looking low and you want to improve on them:

  • Make prompt payments
  • Set up lines of credit with suppliers
  • Report accurate financial figures
  • Increase credit limits where possible
  • Highlight and correct any errors in your financial history
  • Work with established low-risk businesses and partners.

Review partners and suppliers

When you are armed with the financial knowledge of a business’s current situation, be that successful or failing, you can utilise this to review your supply chain efficiently.

If you know a supplier is paying on time and is not having any financial difficulties, perhaps you may wish to extend payment terms with them or start lines of credit. This can be beneficial for both parties and could strengthen the financial and commercial bond between the two organisations.

On the other hand, if you’re witnessing the financial struggles and decline of a business partner, perhaps it’s time to review this relationship. This can lead you to make successful new partnerships or be open and have a frank discussion with someone with the backing of your new financial information.

Directorship investigation

As well as financial alerts and statistics, credit monitoring will also utilise Companies House data to show you directorial information. From this, you can see how many businesses an individual has been involved with.

You can look into their director history too, allowing you to see if there may be a dangerous pattern of previously failed businesses. This is simply doing your due diligence.

Credit monitoring allows you to focus on your business and will alert you when there are significant changes that could affect your business.

If one of your suppliers falls into financial difficulties you shouldn’t have to wait to hear about this when they become insolvent, you should know just as things are beginning to decline so you can prepare for the worst.

Conclusion on using credit data

While it may seem like thorough detective work is needed to understand a company’s history and financial profile, AI rules make this far easier today so you can ensure your business continues to grow profitably.

Technology now allows credit assessors to predict risk before it happens: internal rules highlight those organisations who may be struggling financially to help minimise the negative impacts across the ecosystem.

Each platform will have its own way of analysing the data but ultimately, they should all allow you to make more intelligent business decisions.

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