How credit improvement helps to drive your long-term recovery

21st Jul 2021
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Capitalise
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We look into the importance of credit improvement and how you can improve your clients chances of accessing funding with a better credit score

Keeping your business clients in a positive capital position can be a difficult task at the best of times. But trying to achieve strong balance sheets and excellent working capital during a global pandemic has added greatly to this challenge in recent times. 

Strong and stable recovery is what the business community wants, but that means taking action to ensure this. Working closely with your accounting practice’s clients to achieve a better credit score is one proactive step to take. Credit improvement services help to extend the client’s credit terms with suppliers and access better business funding from lenders – boosting their cash position and their longer-term prospects.

But how do you go about checking a client’s current credit score? And how do you improve that credit score and start opening up a wider world of trade credit and business finance?

The need for good credit in a challenging post-Covid environment

For business clients in the worst-affected sectors, cash flow has been poor and there’s been a pressing need for additional finance. Bank of England data shows that SME lending surged to a record level in 2020, with gross bank lending (excluding overdrafts) to SMEs at £103.7bn, 82% higher than in 2019.

For your clients to ride out these unpredictable times they need to: 

  1. Be able to borrow the funds they need
  2. Be in a decent credit position that facilitates borrowing.

 A low credit score can have a significant impact on a client’s ability to build a secure future. But this impact can be even more severe if they’re currently unaware of this low rating. A poor credit rating could be holding back the client’s recovery, as Nick Richardson, our Head of Unsecured Funding, explains:

We were recently introduced to a furniture wholesaler business that was looking for more funding and knew that Capitalise could help. The problem we had was that the business had a very low credit rating – with a score of 19/100 when we first spoke."

“The owner told us that his credit score had dropped once he’d filed his recent accounts, and this drop in his credit rating was already causing issues. He had long-standing suppliers phoning him up saying ‘Your credit has gone through the roof, so we’ve been advised not to use you’ even though he had good relationships with these companies. On top of this, the low credit score was making it more difficult to find a funding deal, so we knew that action was needed.”

Credit improvement as a key element of Capital Advisory

As a Capital Advisory service, credit improvement is the process of reviewing, repairing and enhancing your client’s credit score – and protecting their capital as a result. 

The top credit rating agencies (CRAs) set the businesses credit score based on a number of factors, including the health of their company accounts, the financial history of their directors, their industry classification and the overall background credit history of the business.

The higher the client’s credit score – marked out of a possible 100 – the stronger their position will be as a company when it comes to: 

  • Negotiating trade credit and extended terms with their suppliers 
  • Agreeing on business overdrafts and loans with their bank
  • Applying for additional finance from third-party lenders.

Ideally, the aim of any credit improvement project is to achieve a credit score of 75-85/100 for the client. This high score puts them into a low-risk category, from a credit perspective, and opens up far greater access to available credit and finance.

Review. Repair. Improve – boosting clients’ credit score

With poor credit being such a stumbling block for your clients potential long-term recovery, it’s an ideal time to focus on credit improvement as an additional service line for your practice. 

Cash flow is still tight and suppliers are becoming increasingly risk-averse when it comes to choosing their preferred clients. So a concerted push on credit improvement projects could well be the key to success for some of your more capital-poor clients.

We offer Credit Improvement with Capitalise, based around a three-stage model of ‘Review – Repair – Improve’. The experts at our credit improvement partner look back over your client’s credit history, repair the technical inaccuracies and update this information with the top five CRAs, resulting in an improved overall score.

This is how we managed to add significant value for the furniture wholesaler client, as Nick Richardson highlights:

“Using credit improvement, we boosted the client’s score up from 19 to 80, and also managed to get the client a second credit line, with their original lender. Because of that bumped-up credit rating, this second credit line was cheaper, and on better terms. So, just by going through the three-stage credit improvement process, the client had greatly improved his score, had accessed a better credit deal and was in a far better situation as a business.”

Building credit improvement into your capital strategy

Credit Improvement with Capitalise is a key part of our Capital Advisory offering – where we give you the resources and training to raise, recover and protect clients’ capital.

We believe that a strong balance sheet and a well-thought-out capital strategy are the key foundations needed for a strong, sustainable and robust recovery for UK businesses. By adding credit improvement, your practice can play a central role in driving this recuperation process.

Get in touch for a chat about the benefits of Credit Improvement with Capitalise.

Call us on 020 3696 9700 or email us at [email protected]