Increase credit score for small business: 14 tips


Small businesses can improve their credit scores.

Hi! We’re Terms.Tech, and our mission is to revolutionise B2B payment terms for European merchants and marketplaces. How? With a simple but comprehensive delayed payments solution. This article looks at why a business credit score is important and how small businesses (SMEs) can improve their credit scores. Get in touch!

Get your business done better! Taking steps to improve your business credit score will help. Increasing this puts your small business in a position to maximise growth, business relationships, and success.

Taking out loans? Buying on credit from suppliers? Want to use a great new Buy Now, Pay Later solution in your marketplace of choice? Looking for credit limits from business partners? Looking to find new B2B partners? Then, part of your strategy should be to know your business credit score and actively take steps to improve it. If it’s already good, make sure the right processes are in place to maintain it.

What is a business credit score?

A business credit score indicates a company’s reliability at repaying what it takes on. The credit score is determined by a combination of credit obligations, loans, debt repayment, legal issues around transactions, mortgages, and payment history. Plus revenues, assets, and liabilities.

Credit scoring firms may also consider the type of business/sector, longevity and track record. Small business directors’ personal credit scores may also be taken into account. (Note: credit scoring methods and credit scoring firms vary from country to country, although there are some widely present.)

Why is a good credit score important?

A good one helps your business to improve cash flow, gain better access to funding, maximise any buy now pay later opportunities, and increase the ease of doing business with partners. Why? Your credit score is traditionally like a risk-o-meter. It’s an indication of the risk that others take to do business with you; or a lender to lend. The higher the score, the lower the risk; and vice-versa.

Another way to look at it is to think about risk-reward ratio: a good credit score helps put your company on the reward side. This is attractive to potential business partners and lenders.

5 reasons to improve your credit score

Build trust

The higher your score, the more trustworthiness your SME will project. Businesses prefer to do business with trustworthy companies, so this will help. Be aware that even if you’re not checking your own credit score, there is a chance your business partners are. The point is: this is about your company’s level of credit responsibility, so if you show you’re responsible it’s much easier for other businesses to trust you.

Better payment terms

The trust component plays a role with payment terms. A higher credit score adds value to your trust proposition. The result can be longer payment terms. On the other hand, a lower one could lead to shorter payment terms. That can be a serious problem for cash-strapped small businesses.

Increase credit limits

A company decides to extend a credit limit to you. You have a better chance of a higher credit limit if your credit score is higher. Again, you are perceived as more trustworthy and this is rewarded. A bad credit score does not rule out receiving credit limit — of course that is each company’s choice on who they want to do business with. But, chances are a lower score will result in a lower credit limit. The higher the credit score, the more business you can do.

Borrow more easily

If you need to take out a loan, a good credit score will help you to secure that financial aid while a poor one may result in the loan being turned down. Or, if you’re lucky and it’s approved, you’ll likely receive far-from-favourable conditions.

Get lower interest rates

The general rule of thumb is this: the higher your credit score, the lower your interest rates. Every little tenth or hundredth of a percent matters. It all adds up. So, lower interest rates save money and use it on doing more business.

How can you improve your business credit score?

Improving your credit score does not happen overnight. And if you’ve had some late debt repayments, the challenge will be greater. But, a sensible step is to learn ways to increase your business credit score and then make an action plan to do it. Some say 13 is unlucky, so here are 14 ideas your company can implement to improve (and secure) its credit score.

  1. Know your credit score and take action

Find out your credit score (or scores) and check your credit reports. You may be able to get scores from multiple agencies, so do it if you can. You might spot errors in your credit reports. You can see everything that is pushing up or pulling down your credit score. There may be something erroneous bringing your score down. Contact credit scoring firms to discuss adjustments based on mistakes or evidence they may not have considered. Don’t ask for credit if you don’t already know your score(s).

  1. Pay debts on time 

Late debt repayment is a red flag. Arguably the most important — if you have debt and don’t repay on time (or at all) your credit score will sink faster than the Titanic. On-time payments drive your score higher.

  1. Pay suppliers on time 

Late payment is another red flag. Keep up to date with invoice payments and pay within the agreed payment terms.

  1. Pace loan applications 

If a company has been denied a loan application, it shouldn’t rush down the street to the next lender. Lots of applications can be a warning sign. Before applying for the next one, take some time and implement meticulous steps for improvement before applying for another loan.

  1. Avoid going over your revolving credit limit 

Staying under a revolving credit limit (e.g., for business credit cards) demonstrates that your business manages credit well, which is attractive to lenders.

  1. Make sure your customers pay on time

Your customers pay late meaning you don’t have access to the money you were counting on. Depending on your company’s financial situation, this could be money you were counting on to use to make your own payments, buy resources, or even pay back loans or interest. So, make sure they pay on time, and when they don’t you should chase.

  1. Make your financial data transparent

You can help yourself by proactively providing up-to-date and timely financial information to the necessary financial institutions in your country (e.g. Company House in the UK). If you have positive evidence beyond the legal minimum, provide that. Also, make sure you meet the submission deadlines set by the relevant agencies.

  1. Keep your company info up-to-date 

Make sure all your publicly-facing company information is up-to-date and accurate. Make sure your business partners have any info changes, and take steps to ensure they do as soon as possible. For example, you don’t want to end up not paying something you could easily have paid for because a supplier sends the invoice to the wrong address or email.

  1. Due diligence

This is about mitigating your risk, limiting your chance of dealing with bad payers, and thus not putting your credit score at risk. This applies not only to potential business partners, but to current and historical ones — anything can change at any time, so keep your customer/supplier knowledge up to date.

  1. Avoid legal issues 

Liens, judgments, and other court actions can seriously damage your credit score. Take necessary precautions and manage your business to avoid these. Find resolutions as soon as possible if they might arise.

  1. Open a business bank account

Possibly more for startups: your business needs a business bank account with its name on it. Get an overdraft while you’re at it.

  1. Start using credit if you haven’t before

Take out a small and reasonable loan you are sure you can pay back on time. Rinse and repeat. Set up business credit cards and spend under the limit and repay on time. Little steps to start will get your credit score off to a good start. The point is, you can take the initiative to create a positive credit history. Maintaining some sort of reasonable and payable instalment credit can work to your advantage.

  1. Personal credit scores count (i.e., directors)

In the case of small (and micro) businesses, it’s acceptable for credit scoring agencies to include personal credit scores of the directors. Knowing this, there are two logical conclusions. When selecting directors, check their personal credit scores. Directors should exert effort to ensure their personal credit scores are high.

  1. Careful about who you do business with

We are back to trust. B2B success often relies on fewer customers than B2C, but bigger transaction value and long-term partnerships. This means that Customer Lifetime Value (CLV) is hugely important in the B2B world. How much value will the partnership create in the long-run? Figure that out, and you set your business up for success.

If you demonstrate a good credit score, you are more likely to be trusted. This can be the needed edge to secure long-term B2B relationships. And, therefore, to get the most of CLV through enhanced account acquisition and maintenance. In doing so, you help secure the health of your company.

Business credit score and B2B Buy Now, Pay Later solutions

So, what does all of this have to do with B2B Buy Now, Pay Later solutions? BNPL in the B2B context is relatively new, but it’s taking off with incredible speed as B2B marketplaces are providing these solutions more and more consistently.

What happens when a buyer goes to checkout in an online marketplace? Nowadays, a BNPL option may be an attractive option. One BNPL solution is Terms.Tech, which offers up to 120-day payment terms, and some possibilities for customisation. Through the Terms.Tech credit risk algorithm, almost instantaneous decisions are made about the buyer’s creditworthiness leading to approval of the BNPL service, and for which payment terms. The better a buyer’s credit score, the better chance of getting BNPL approval and the optimal terms to ensure a healthy cash flow.

Here are 9 great reasons to choose Terms.Tech as your B2B payment service!

🤝 Why wait to find out more? Get in touch with our Terms.Tech consultants and see what the best BNPL solution is for you.