A company credit rating works in much the same way as an individual credit rating. So it provides information on how your company has handled its finances in the past with the aim of offering an insight into how it and you are likely to manage money in the future.
A company credit rating isn’t designed to be absolutely definitive or unchanging but it is important to have it in mind as an organisation of any size because its impact and relevance can be wide-reaching.
Here are 5 instances in which your company credit score matters:
1. Getting loans
The most obvious and one of the most vital ways in which your company credit score matters is in the context of applying for loans or lines of credit. Without an ability to demonstrate a strong history of paying back money borrowed and settling bills on time for an extended period, you might find your company struggling to secure funds when they are needed.
2. Financial flexibility
Businesses of any size need to retain some measure of financial flexibility in order to overcome challenging market headwinds or unforeseen operational difficulties of any kind. The time to focus on and worry about your credit score is when things are going well for your company because, by the time they start going wrong, it might be too late to create the financial flexibility you need.
3. Generating more business
No company exists in isolation and any business you partner with or provide services to can get a sense of your solvency and reliability through your credit score. It can be that having a strong credit rating as a company is enough to tip the balance one way or another when a potential client is considering its options in awarding a major contract to a new supplier.
Establishing a robust financial and credit rating profile as a business provides a strong and solid platform for an organisation to develop and compete well in its industry. It isn’t possible to turn around a bad credit score overnight, but with the right approach, progress can be made and it can become an important differentiator between companies providing similar services in the same sector.
5. Remaining solvent
Ultimately, what a strong credit score provides is some measure of protection against the prospects of seeing your company become insolvent or no longer viable. When your company credit score is healthy, there are likely to be more options available under challenging financial circumstances. In short, a good credit score might just be the difference between your company surviving difficult times or perishing in the face of insurmountable debt management problems.
Conrad Ford is Managing Director of Check Business, a technology start-up that helps SMEs solve the key business challenges of: getting paid, finding new customers, and raising finance. Conrad has a Masters from Cambridge University. You can find more information on his website or follow him on Twitter.