If your business has been struggling with keeping on top of your financial commitments, then you’re certainly not alone. The proportion of UK companies with a bad credit rating has climbed in the past three years, making access to finance even more difficult. With banks asking for increasingly stringent terms for business lending, it’s becoming more difficult for huge numbers of companies to access the funding that they need. It has also impacted on their ability to get favourable credit terms from suppliers, another drain on already precarious cash flow.
According to a study by Graydon UK, a credit risk management company, 69% of small businesses assesses were seen as high risk or above normal risk. This was assessed in terms of their likelihood to default on trade payments or their probability of getting into financial difficulties. When a similar survey was conducted in June 2009, the figure stood at 60% – still high, but there has clearly been a significant rise over the last three years.
In stark contrast, only 5% of small businesses were seen as low risk. Again, this compares unfavorably with this time three years ago, when the figure stood at 13%. This shows many businesses’ credit ratings are going downhill, demonstrated in the shift towards higher risk ratings.
The key to undoing this slide into bad credit ratings is to make detailed financial information available, especially when access funding remains scarce. Many businesses are starting to look beyond the banks to alternative means of funding, such as invoice finance, in order to bypass the increasingly tough requirements that the big banks are asking for. Sharing current financial information means businesses are able to seize more control over the credit rating that they receive, which in turn impacts on the finance options that they can access.
With credit scoring often so central to your business’ ability to get that essential funding, it’s important to do everything possible to remedy any problems.