What Is a Business Credit Score in Ireland and Why It Matters?

While Irish entrepreneurs are generally aware of what a personal credit score is, you borrow, you pay back, you establish a pattern, and then the lender judges based on that pattern. Something that people are not generally aware of is the fact that your business also has its own credit score, one that is totally unrelated to your personal credit score. It follows you as closely as your personal credit score does.
It may shock you to know how many Irish SMEs have never even checked their business credit score, let alone having any clue as to what it consists of. However, there is no need for alarm, as we are here to clear up all your doubts. Understanding your business credit score is actually one of the simpler ways you could strengthen the financial standing of your business.

What Is a Business Credit Score?

This is a numerical figure which tells how credit-worthy a business entity is perceived to be by the external world. It relies on publicly available information and financial reports used in determining how credit-worthy the company is considered. A business credit score is important since it gives potential lenders and other business entities an idea of how reliable the business is going to be when it comes to meeting its financial obligations.

Unlike in the case of individuals whose scores are dependent on various aspects of their personal financial information and status, the business credit score belongs to the company as a whole. While this might be true for a sole proprietorship where personal and business finance cannot always be separated, a limited liability company’s credit score is not affected by the personal credit score of the directors.

Credit scores are numerical in nature, with a higher score being an indication of low risk associated with doing business with a company. The numerical figures differ from one credit score provider to another, but generally speaking, a high score is an asset while a low score makes business dealings difficult for the firm, even though all its business operations are healthy.

What Factors Go Into Calculating the Score?

However, since each credit scoring agency uses a unique methodology, no two scores would ever be completely identical to each other. Still, the sources of information used by the credit bureaus remain largely the same in all cases, and some of them hold more importance than others. The main ones include the following.

• File at the Companies Registration Office, including details about the filing of annual returns and financial statements on time.
• County Court Judgments and any other legal actions registered against the firm.
• Payment history, which means whether the company fulfils its commitments towards suppliers and creditors punctually and on a consistent basis.
• Age of the company, as well as its history of ownership and directorships.
• History of directors, including instances of personal insolvency, affiliation with other dissolved companies, etc.

It should be noted that the process of updating credit data might take some time. It means that the actual event might happen earlier than the credit score changes accordingly. This fact should be taken into account when evaluating credit scores on an ongoing basis.

Why Does It Matter for Your Business?

The most immediate implication of having a business credit score is that it affects the ease with which you can get external funding. A good credit score will make your financing process easier, and a bad score will put you under additional scrutiny during the financing assessment. It can also lead to unfavourable loan terms.

On top of the implications in financing, another area where a business credit score has significance is in trade financing. A supplier will do a credit check before agreeing to a payment period of thirty or sixty days after delivery. A bad score in this case means that the payment period is shorter or that they must receive payments upfront.

Then there is the issue of the hidden importance that a business credit score has in contract and tendering processes. Big companies and government agencies do financial checks before agreeing to do business with someone. In this scenario, a good business credit score can be a silent strength.

How Can You Check Your Business Credit Score in Ireland?

However, there are several credit bureaus that collect information about Irish companies and issue credit scores or reports. These organisations may be global ones, like Dun & Bradstreet and Experian, for example. However, there are some providers that only provide services for Ireland, and it is useful to know about them too.

Being a business owner, you are free to request the information collected about your company. Getting a score report will not have any influence on your company’s score, something that is often perceived as dangerous from a personal perspective. The only thing you need is to contact the right provider and get a report issued by it.

In case there are some errors on your credit report, the procedure for correcting such errors is also possible. You can contact the bureau where the error was registered and make sure that everything is corrected as soon as possible. Even one mistake is capable of significantly influencing the company’s overall score.

Practical Steps to Improve Your Rating Over Time

The credit score for any business is not static and will continue to evolve as the underlying information continues to shift. This means that there are specific actions that can be taken in order to positively influence your score. All of these actions are straightforward and simple. Most of them simply come down to operating your business in an orderly and sound manner.

Maintaining up-to-date CRO filings is one of the more influential steps that you can take. Late filing and missing annual returns are two red flags that will definitely hurt your credit score, and yet they are completely avoidable with a little planning. If you use an accountant, now might be a good time to have a chat with them before the next filing period.

Making payments to your suppliers consistently and on time will help to build a history of prompt payment, which will serve you well in the long run. Although it seems obvious, nothing speaks more to your financial management than making timely payments to your creditors.

It is also important to keep in mind the general state of indebtedness and its structure. A company that maintains a relatively high amount of debt compared to its income can be scored lower than a company that has better balanced finances, even when the former operates smoothly.

The Bigger Picture

Your business credit rating forms a component of your wider finances, although it is a part that has some weight behind it. Turning a blind eye to it will not make the matter disappear. Investing a few hours into understanding it, checking it, and establishing maintenance practices is just one of those actions that will bring you long-term benefit.

Those businessmen and women who are knowledgeable about their credit status will be in a far better position than those who learn about the issue for the first time right in the middle of a conversation.

We at GRID Finance deal with Irish SMEs from all sectors and, generally speaking, our clients who know exactly what is going on with their finances find the process easier and smoother.