5 ways you can ensure your business is creditworthy

5 Ways You Can Ensure Your Business Is Creditworthy

5 ways you can ensure your business is creditworthy

There are many benefits to be had from maintaining a creditworthy business. As well as being able to access more forms of credit, your business can also enjoy more cost-effective credit terms, swifter decisioning and a stronger strategic standing when negotiating with trading partners. Here we look at five tips for ensuring your business remains creditworthy.

Why being creditworthy is essential to business success

Credit and finance providers are constantly engaged in risk assessment and mitigation exercises. To maintain a sustainable business model, they must minimise the risks associated with lending money to businesses. Having a creditworthy business is therefore essential to securing commercial finance – a fundamental part of business growth.

As well as potential finance providers, your suppliers and customers will want to know that your business has a strong financial reputation. Credit checking allows potential trading partners to minimise the risk of bad debt and supply chain failure.

Also, if your business builds a solid, creditworthy financial standing, your company’s value will increase. It will become more valuable to investors and attractive to potential buyers if you were to ever sell it.

Increasingly rich and accurate data sources are now available for organisations to incorporate into their credit assessment procedures. Credit reference agencies employ a range of data points to determine your business’s credit rating, which forms a large part of finance providers’ assessments.

Top tips for staying creditworthy

It can be difficult for small and fast-growing businesses to create and maintain a strong financial standing. Small business owners often need access to credit. Yet they don’t necessarily have the significant cash flow coming in that larger business and corporations do. Therefore, in order to build and maintain a creditworthy rating, it’s particularly important for SMEs to maintain good order over their finances.

Here are our top tips for ensuring your business is creditworthy.

1. Maintain a healthy business credit score

Ensuring your business remains a viable prospect for traders and credit providers involves several fundamental elements, one of which is maintaining a healthy credit score.

There are various factors that can have a negative impact on your business’s credit score. According to global credit reference agency Experian, the main activities to avoid if you wish to maintain a healthy score are:

  • Missed or late payments against existing loans and credit cards
  • Any CCJs (County Court Judgments) or bankruptcy / other forms of insolvency
  • Filing your accounts late to Companies House
  • Having high levels of debt
  • Making several applications for credit at one time

Having a poor credit rating can inhibit the growth of your business. And make it difficult to secure funding, investment and trade.

There are software-based platforms that can assist with establishing business credit.

2. Check your credit score regularly

As mentioned above, maintaining a healthy credit score is fundamental to building the foundations of a creditworthy financial standing. Don’t take a laissez-faire approach.

Frequently check your business credit score to avoid surprises. E.g. at least every six months, or at least six months before you apply for any credit. This will give you the opportunity to correct any errors that may be affecting your score. Making multiple unsuccessful applications for credit can help put your business in a difficult position. Lenders will be unwilling to offer you favourable credit terms, if any at all.

3. Pay all invoices on time

It’s not just credit cards and loans you should be paying on time. Ensuring all your supplier invoices are paid on time is important to running a robust, creditworthy business. New late payment guidance from the UK Government illustrates the increased focus on the payment performance of businesses.

With advanced data analytics available that blend business, director, and payment history data, credit agencies now offer highly informed solutions for organisations seeking to mitigate not only the risk of bad debt, but also supplier or customer insolvency. A poor or worsening payment trend is often considered a key indicator by credit providers and trading partners of a deteriorating cash position.

An additional benefit of ensuring all your invoices are paid on time is that in a world where late payments are increasing, you can quickly gain a reputation as a ‘customer of choice’. Latest figures show UK SMEs are owed £26.3 billion in overdue payments. Your reputation as a good client would enable you to negotiate better prices from suppliers and attract deals with the best suppliers in the market.

Utilising a supplier payments finance solution such as Pay4’s revolving credit facility will ensure that you can pay your suppliers on time, while still maintaining healthy cash flow.

4. Maintain healthy cash flow

Of the ‘five C’s of credit’ that lenders consider when assessing the creditworthiness of a potential borrower, it is generally the capacity of the borrower to repay the loan that is the most important.

For business loan applications, the lender will review your past cash flow statements to determine how much income they expect from your operations. From this they will assess your ability to repay the loan and the likelihood of default. To increase your chances of getting approved for credit, you must demonstrate how you have paid off previous debt, had consistent cash flow, and have the ability to pay off future debt.

Our Guide to Cash Flow Success provides some in-depth information about how to maintain a healthy cash flow.

5. Have a sound business plan and forecast

To be creditworthy to potential lenders, you have to show that you manage your company well and that it has a successful future. Furthermore, you’ll need to demonstrate that your business is competitive for its industry and target market. Do you have a robust and well thought-out business plan and business forecast?

You should be providing a detailed picture of your business financials as well as a pragmatic assessment of its growth prospects. Lenders will check your business plan thoroughly, so ensure your figures and estimates are as accurate as possible. They essentially conduct a risk assessment based upon your business performance, both past and potential.

Your plan should preferably be between five and twenty pages long and have substantiating documentation alongside it. Generally, these documents should include the following:

  • three years’ worth of balance sheets (if your business is old enough
  • profit and loss statements
  • tax records
  • cash flow projections
  • details of your accounts receivables and payables


Lenders will want to see that you’ve got a realistic and flexible enough business plan. They’ll want to see adequate assets, financial reserves and personal collateral to handle any fluctuations.

If your business is relatively new, finance providers will ask you to prove that you’ve had success running a similar venture in the past.

Above all, you must know your business. Applying for credit can be an opportunity to showcase how well you know your company, and how bright its future can be. Keeping on top of these tips will not only help ensure your business is creditworthy. Furthermore, it will also stand it in good stead for a prosperous future.

5 Ways You Can Ensure Your Business Is Creditworthy