Do you know the (credit) score?

By Alan Johnston July 01, 2015 Full Credit

A question for all business owners: how many of you know your company’s business credit score? If you can’t answer that question, then you have plenty of company. If you answered “What’s a business credit score?” you’ve also got plenty of company.

According to research, 60% of small and medium sized business owners don’t know their business credit score – and 50% don’t even know they have a business credit score.

While the above observations were made based on overseas business research, we can assume similar results if applied to NZ businesses.

Lack of awareness about your business credit score can have big repercussions for your business – both today and in the future. They say knowledge is power – and clearly knowledge of your business credit score, how to improve it and how to protect it can give you the power to grow your business.

The unfortunate thing for the NZ market is that, in most instances, credit scores are based on little or no trading information. Generally they are reliant on the old adage of “no news is good news”, which tends to lend itself to a medium-good rating.

However, if you had a disagreement or dispute in the past that resulted in a negative outcome, then, no matter how small the amount, it is likely you will be disadvantaged because your business credit score has been adversely affected.

 

SO WHO CONTROLS YOUR CREDIT SCORE?

In NZ, there are three major credit information bureaus providing commercial credit information and ratings although CreditWorks is the only one gathering pertinent and current, trading data on a regular (usually daily) basis, thus enabling a more accurate or realistic assessment to be applied to the scoring.

Which brings me to the real point of the article – your ability to positively impact your credit score by ensuring that your business is recognised as being sound financially.

The only way this can be accurately achieved is for the information bureau to be supplied with your trading history by those you do business with and obtain credit from. This is what we have come to know as Positive Data (as opposed to Negative Data, which effectively scores you on the absence, or otherwise, of bad credit indicators.)

I recall a situation a number of years ago, when my employer at the time was seeking to upload their debtor ledger into the CreditWorks database (CRISworks). On becoming aware of this intent, one of the major housing companies they supplied expressed concern about their franchise’s credit behaviour becoming visible to enquirers and members of CRISworks.

However, upon further examination, the housing company concerned identified that this could well work in their favour when dealing with suppliers. Since the company prided itself on its payment profile, and regarded itself as the best in the business when it came to paying their debts on time, it saw the advantages of potential suppliers being aware of this good behaviour.

With suppliers being able to note from the payment profile that a customer is low risk, having established a sound track record of on-time payments, and good volume, they will be keen to attract and retain that customer’s business. After all, this means less borrowing to finance debt, thereby lessening overdraft fees as well as the credit management and payroll costs associated with chasing slow payers.

This meant the housing company was in a strong position to negotiate the best possible deals, which wouldn’t necessarily have been the case if suppliers had concerns about getting their money on time, or couldn’t validate the customer’s track record.

While the use of trade references and networking has some benefit in this area, it is still reliant on full honesty, transparency and accessibility to be of value, which is not always the case. Also, customers seeking credit will logically provide potential suppliers with selected referees they want them to call.

In the end, the housing company referred to above virtually insisted its details were supplied to the information bureau for this purpose.

Finally, the last word from the US Small Biz Daily publication on their reference to credit scoring:

“Getting your suppliers to report your good payment history to the relevant business scoring agencies is very important. Too many merchants rely on negative data to tell them whether or not they should trade with someone. The old ‘no news is good news’ philosophy, is fallible. The merchant needs to realise they would be doing their good customers a favour by providing their trading history to the credit bureaux.” 

 


Alan Johnston is General Manager, CreditWorks Data Solutions Ltd, and has been involved in credit management for over 35 years. In 2011 he was presented with the NZCFI Credit Professional of the Year Award, for his achievements within the credit industry. Email him at alan.johnston@creditworks.co.nz or call him on 09 520 8133 to find out more.

 

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