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2020 has seen more business credit searches run each month than at any other time in history. The COVID-19 pandemic has led to companies becoming increasingly nervous about getting paid and buyers more careful about where contracts are awarded. Additionally, finance is tightening and credit facilities have grown in importance.

We can predict the following:

  • Material delays in payments to suppliers – stretching agreed terms
  • CCJ at record levels
  • Director level volatility
  • Insolvencies
  • Sector-wide downgrades

Already we can see sectors being affected across the board with; Retail, Logistics, Hospitality, Travel and Tourism being
most afflicted.

Many are predicting a “credit reset” in the UK, by this they mean, that the assumed level of credit afforded to companies could drop to approaching zero.

In this environment knowing, understanding and being able to improve your business’ ratings and recommended credit limits becomes, for a business leader, more vital than ever.

How does the market work?

The UK trade credit ratings market is dominated by 5 main players:

  1. Creditsafe
  2. Experian
  3. Dun & Bradstreet
  4. Equifax
  5. Graydon

All 5 of these have a different scoring methodology for all limited companies and partnerships in the UK. They use data filed at Companies House, market information and historical data trends to allocate a rating and a recommended credit limit to all UK businesses.

With the advent of improved technology, greater data demand and the corporate trade credit market being worth circa £500m p.a. in fees, the need for a strong and reflective rating is essential.

These agencies report and consider within their scoring methodologies many of the following:

  • Filed accounting data
  • Business sector
  • Group structure
  • Payment behaviour to suppliers
  • SIC code
  • Director changes
  • CCJ’s issued / settled
  • Years since incorporation

All of these elements make up an overall credit rating and a recommendation for the amount of credit facility to offer.

A business may be unfairly judged based upon historic information submissions whilst current trading may well be greatly improved and show a different picture but this is not being taken into account. This can lead to many companies having suboptimal ratings and limits.

Given the COVID-19 pandemic backdrop, companies are nervous about whom they offer credit to. This means that the next 2 years are likely to be the most volatile in history, this presents opportunities and also risks. With company credit ratings impacting all areas including:

  • Working capital
  • Ability to raise finance
  • Tendering for contracts
  • Utility contract pricing
  • Leasing vehicles and equipment
  • You can see why an innovative solution to help with these areas is really vital.

Addressing this situation

There is no natural and easy way for businesses to challenge its credit ratings across the main five agencies. They tend to place more emphasis around responding to the consumer market and there are no established mechanisms for dealing with corporate queries.

This is where we can help, using our unique approach and experience we are able to positively influence your company’s outward facing credit profile. Through our partnership with a market leader we are able to challenge your rating without any increase in the publicly viewable data about your business.

The process

The whole process takes far less time than you might imagine. Initially a free of charge market review can be produced giving business-critical information on the number of searches made over the last few months, ratings and limits for all the five main agencies. This can then be followed up with a short three day project to review and re-present business information leading to improved ratings to meet agreed project targets.

Article by: John Wardle

As seen in Issue 5 of The Bottom Line