Q & A ON BUSINESS CREDIT SCORE

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Did you know that your business receives an annual “report card”? There is an actual number that indicates how well you are doing in terms of business credit. The closer you could come to an A+, the more opportunities this will unlock for your business.

Below, we answer some vital questions regarding business credit scores.  

What is a business credit score?

A business credit score is a figure that states how creditworthy your business is. It indicates to other businesses and financial organisations whether it is a high or low risk to enter into a business relationship with you, lend you money or give you credit.

Why is it important to have a good business credit score?

As indicated above, a business credit score is used by other organisations to view your credit reputation – i.e. how reliable you are in paying back loans and settling accounts. A good credit score could offer your business more favourable terms with suppliers and vendors. It could also open the door to funding opportunities and improved interest rates to expand your business or help it survive challenging financial periods. Moreover, building a positive business credit score is a necessary step for a small business to create a dividing line between an owner’s personal and business finances.

How does the scoring work?

A bureau compiles your credit report by viewing your history of lending and making repayments through accessing information from lenders and financial organisations. They will evaluate whether you paid your debts in full and on time and will record any defaults or judgments against your business. The bureau will then generate your business credit score.

Depending on the bureau, your credit score will be a number between 0 and 100 or between 300 and 850 – the higher, the better. On the latter scale, a score above 750 will mean you have a good credit record and it is safe to do business with or loan money to you. A score below 527 will place you in a high-risk category.

In South Africa, the main credit bureaus include Experian, TransUnion and XDS.  

How do I acquire my business credit score?

According to the National Credit Act, every business is entitled to access their credit reports once a year at no cost from each credit bureau. You can also pay for additional reports. Contact the bureaus mentioned above directly to attain your business credit score report.

How can I improve my business credit score?  

These financial habits are crucial to cultivate in your business:

• Pay creditors on time – obviously. Set reminders if you have to.  
• Use low amounts of revolving credit (e.g. credit and store cards). As a rule of thumb, keep usage less than 25% of available credit.
• Ensure proper cash flow to enable on-time payments, even if you have outstanding invoices to collect.
• Avoid missed payments and their evil relative – judgments. Court judgments filed after repeated missed payments or when credit accounts are overdue by 90 days will stay on your credit record for five years. Ouch!
• Keep your suppliers informed. If you are going to miss a payment, inform your supplier of the reason and when you plan to pay – and make good on your promises.  
• Establish business credit with institutions that report trades to credit bureaus (such as banks, telecommunications and utilities companies). Paying these companies on time and in full will increase your credit reputation.
• Regularly monitor your credit reports to ensure that the information is updated and accurate.

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Now, go score!

Our team at Huysamen Westraad Inc. will gladly assist you in planning to improve your credit score or with any related issues and questions. Contact us!

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