Business Credit Rating: Poor rating hurting your business?
If there is one positive that has come out of the UK’s double-dip recession, then it is reminding businesses of how important their credit rating is. In many sectors, both suppliers and customers have now re-engineered their processes to routinely look at a company’s credit ratings. Within the UK, Experian is one of the major credit rating agencies, assessing credit risk using it’s ‘Delphi Scorecard’ index:
Score Risk Rating
91-100 Very Low Risk
81-90 Low Risk
51-80 Below Average Risk
26-50 Above Average Risk
16-25 High Risk
1-15 Maximum Risk
0 Serious Adverse Information/Dissolved
This Delphi score is calculated using an algorithm based on:
- Average current trade creditor days,
- County court judgements (business & directors),
- Worst consumer score of director,
- Insolvency events reported in London Gazette,
- Lateness of filing of financial statements,
- Poor financial results (inc net worth & current ratio),
- Recent increase in credit applications tracked through previous searches.
In most cases, SME’s submit abbreviated accounts to Companies House, so there is very little data available to Experian to calculate their Delphi score. So what can be done to improve your Delphi score (beyond trading out of your current weak position):
- Submit accounts to Companies House before deadlines.
- Manage the timing of filing accounts on the public record at Companies House, so as to delay/minimise the period of bad news and advance/maximise the period of good news.
- Consider changing your accounting reference date, if it presents a stronger balance sheet or delays the filing of bad news or advances the filing of good news.
- Reschedule and disclose directors loan accounts as a long term liability rather than a short term liability,
- Consider options for balance sheet presentation (eg position of Accruals),
- Convert directors loan account into equity (inc redeemable preference shares), or release it,
- Recognise a deferred tax asset for losses carried forward,
- Issue further equity (consider called up but not paid shares).