New research from Experian has revealed businesses in the South West have the strongest average business credit scores in Britain, while London ranks as the lowest.
Organisations in the South West have an average business credit score of 54.7 – up from 53.4 last year. A business with this score is considered a below average financial risk. Postcode areas Hereford (58.09), Exeter (57.75), Taunton (56.60), Truro (56.51), Torquay (56.28) and Plymouth (55.98) all came out highly with the healthiest credit scores.
At the other end of the rankings, eight of the 10 postcode areas with the lowest average Experian business credit scores are in London, posting an average score of 47.2 out of 100. A business with this score is considered an above average financial risk. Investors and lenders view businesses with lower scores as higher risk, so they may find it harder to access growth funding.
The research also found that higher scoring regions correlate with a higher average age of businesses – varying from 8.29 years in London to 9.81 in the South West. More established companies tend to have a more detailed credit history, translating into a more positive credit score. Meanwhile, younger businesses usually score lower.
Matthew Dunn at Experian said, “More than 400,000 new start-ups have been established in Britain every year since 2008, yet fewer than half of these businesses survive beyond five years often due to a lack of finance options available to them. Establishing a strong credit history can take time, which not all start-ups have in their favour.
“It’s important for owners and directors of early stage companies to understand how they can strengthen their credit history. Paying invoices and filing accounts on time can help fledgling businesses to build their histories, while checking Experian business credit score is a sensible first step.
“The Commercial Credit Data Sharing (CCDS) scheme will also help companies which have a limited financial footprint – by enabling enhanced access to their data, and therefore broadening the credit options available to small businesses.”
As part of the CCDS scheme, nine of the largest banks were mandated by the Treasury to share information they hold on UK SMEs to the three main credit reference agencies, including credit accounts and current account turnover (CATO) data. The scheme will allow a better flow of credit to small businesses who may have been turned down in the past, when the information is combined with existing data sources.
Table 1: Experian business credit scores vs average age of businesses per region
|Region||Companies||Average Score||Average Age (years)|
|Yorkshire and Humberside||142425||52.72||11.22|
Table 2: What does your Experian business credit score mean?
|1||Imminently failing company|
|26-50||Above average risk|
|51-80||Below average risk|
|91-100||Very low risk|
Seven steps to improve your business credit scores:
- View your business credit report to understand the positive and negative factors in your history and plan the best path for progress.
- Make a note of suppliers’ payment terms and plan payments so they are on time. Poor payment performance can indicate a business struggling to service its debts.
- File annual returns and financial accounts on time. Making more information on your business available helps suppliers, utility providers and lenders to understand it and make appropriate decisions.
- Avoid County Court Judgments. Should one occur, settle it promptly.
- Keep an eye on your personal finances. Directors’ personal credit scores can be taken into account for new businesses when little information is available.
- Appoint a director with a strong history of running companies and a good credit score to help boost your company’s standing.
- Check and monitor the credit status of the companies you work with, so you can anticipate any supply chain problems before it affects your business