Credit Where Credit is Due

Credit Where Credit is Due

Now is not the time to undermine your company's credit rating

The importance of your business having a healthy and accurate credit score has significantly increased with the heightened financial pressure of the economic downturn, according to Steve Manwaring, Director at corporate restructuring and insolvency specialists, MCR.

"With access to credit from the banks and the trade credit insurance providers the toughest it's been for some time, knowing how to achieve a positive credit score from ratings and information agencies is now absolutely vital. For many entities though, there is confusion and uncertainty about why a credit score is important, let alone how to achieve a positive rating," states Steve Manwaring.

A credit score is often a large part of the way your business is presented to the outside world. Many business partners will judge your business on its current status as well as the historical trends of your credit rating. Having this accurately represented is hugely important to the sustainability, growth and investment in your business. You need to know who is coordinating the rating, what they're reporting and if it is not favourable, what measures can be employed to turn this around.

"Availability of credit allows your business greater agility to interact and transact with suppliers and customers. A credit score is a summary of the historical credit information of your business, largely based on detailed financial analysis of the publicly available facts and figures,"

"It is designed to give a lender, insurance underwriter or trade supplier a prediction of the ability of a business to meet its debt obligations, against which your suppliers make informed decisions about how much credit to extend to your business, and in some cases even whether or not to actually trade with you," he added.

Traditionally scores are formed using data from your filed financial report and accounts. However more recently data is also compiled by companies passing on the payment and behavioural experience of their customers. This is a consideration for companies that have traditionally been slow payers as your score will be marked-down to take account of this.
"The most important step is to have a consistent and upfront financial reporting system that enables access and transparency of your financial history. Additionally, it may be beneficial to make your latest internal Management Accounts available to your suppliers, particularly if suppliers are covering your financial obligation with a trade credit insurance policy," continued Steve.

"This sounds perfectly logical, however a notable conflict is that if you own or manage a business that qualifies under the Financial Reporting Standard for Smaller Entities effective since January 2007, then you will no longer be publicly evidencing that your company is making a profit,

"This reporting method has benefits such as reducing your auditing fees but conversely businesses should also be aware that it can lead to a poorer rating. Credit bureaus can find the information insufficient to make a true assessment, particularly if your business has been affected by a non-operating adjustment such as an asset write-down," he continued.

An approach often underestimated is developing a relationship with the banks, credit insurers and most importantly the businesses you trade with. Like any partnership, the greater rapport you have with the people you do business with, the better understanding and appreciation they will have of you, particularly where an increase in non-financial information such as strength, experience and track record of management would assist in the decision making process. This more personal style also helps to prioritise your financial reporting, making it less of a burden and more of an essential part of your business.

About MCR
MCR was formed in April 2001 to offer turnaround, restructuring and insolvency services of outstanding quality to banks, lenders, business owners and individuals in the mid-market sector. It aims to provide the most practicable ways to resolve issues affecting business performance.

The firm has 12 partners who practice an ethos of high-level involvement to ensure that each assignment capitalises upon the expertise and knowledge of the whole team.

MCR regularly handles significant projects across a range of sectors and has been involved in a number of high profile cases. MCR is increasingly being asked to restructure businesses and find turnaround solutions to help companies avoid formal insolvency. Sectors include property, manufacturing, printing, recruitment, hotels, leisure, e-commerce, automotive, telecommunications, music, entertainment and construction.

For more information, www.mcr.uk.com

For further information, please contact

Steve Manwaring, Director
Email: smanwaring@mcr.uk.com
DDI: 020 7487 7260
Mobile: 07827 290 056