Table of Contents
In Short
- Your eCommerce business has a credit score that ranges from 0 to 100, indicating its risk level to lenders and suppliers.
- Factors like filing taxes on time, paying bills promptly, and avoiding legal actions, such as insolvency, impact your credit score.
- A good credit score can improve your chances of securing financing or favourable credit terms.
Tips for Businesses
Regularly check your business’s credit score and ensure your accounts and taxes are filed correctly and on time. Pay bills promptly to build trust with suppliers and improve your credit rating. If facing financial challenges, seek legal advice to prevent issues like insolvency from damaging your credit score.
Running an eCommerce business can be busy with tasks such as maintaining your website and buying stock. However, you need to be aware of less obvious but essential parts of running your company. One of these is your credit score. You should know what this is and ensure you reach and maintain a high one to keep your eCommerce brand running smoothly. Therefore, this article will explain credit score checks for businesses and understand and improve creditworthiness.
Selling your business involves a number of moving parts. This fact sheet will provide an overview of the sale of business process and
the documents you need to make an effective sale.
What is a Credit Score?
Like any other business, your eCommerce business will have its own credit score. This indicates the risk your company carries to other firms wishing to offer you credit. Your credit score will be on a scale of 0 to 100, with 0 being the lowest score and, therefore, the highest level of risk to lend to. The scale divides into the following:
- low risk;
- medium risk; and
- high risk.
A low-risk score of 40 or below means that you will not be able to borrow. A medium risk score is between 40 and 80, which may mean that other businesses require further information from you to check your creditworthiness. A high score is 80 or over and is an excellent score.
Experian, for example, calculates its credit scores using a statistically derived algorithm. This allows multiple factors to be taken into account when calculating business risk.
Businesses also have credit limits. This is the highest amount suggested for other companies to give them credit for.
Why Does My eCommerce Business’s Credit Score Matter?
Naturally, the credit score for your eCommerce company is essential to you as it dictates whether or not another company will give you credit. For example, you may need to pay for a revamp of your website, but you cannot pay immediately. If your designer gives you 30-day payment terms, you might be able to do so.
Also, you may need to borrow money for the eCommerce brand to increase your product range, and your company credit score determines if lenders will give you financing. In addition, your customers who are other businesses may decide to check your eCommerce company’s credit before purchasing from you.
Your credit score can also affect the credit deals companies offer you and the rate of interest you pay when you borrow money.
As your eCommerce company’s credit score matters, you should check that your credit profile is correct, as it could have errors that affect your credit score. For example, any discrepancies or negative marks that should not be there. You can opt to sign up for alerts of changes to your credit score with some companies, which can be very helpful.
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What Affects My eCommerce Businesses Credit Score?
Various factors affect your credit score, so it is essential to be aware of these to keep your score high. One of these are legal requirements, and these can depend on the type of company you are. For example, filing:
- company accounts with the Companies House;
- your tax return with HMRC; or
- your Corporation Tax with HMRC.
Filing these on time and following guidelines can help improve your credit rating over time. It is also essential that you file accounts in full rather than abbreviated. Also, any changes to your company details, such as a change of address, should be changed with suppliers, HMRC, and Companies House; otherwise, it can prevent a good credit score.
Legal action against your eCommerce business can also affect your company’s credit score and potentially your personal one. For example, if you:
- face insolvency proceedings; or
- have County Court Judgements (CCJs).
You should get legal advice if your eCommerce brand is facing insolvency or has CCJs.
Key Takeaways
Your eCommerce business has a credit score like other businesses do. This indicates to other companies whether or not they should give your eCommerce brand credit or provide you with a business loan. It could range from 1-100, with the latter being the lowest risk to provide credit or lend to.
Your company‘s credit score is essential for your business, as a low score after credit checks can prevent you, for example, from taking out finance to support your business growth. Some actions can affect your business credit score. These include filing company accounts in full and on time and paying suppliers within credit terms.
If you need help understanding credit score checks for businesses and improving creditworthiness in the UK, LegalVision’s experienced eCommerce lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Various factors can affect your eCommerce business’s credit score, such as not paying suppliers on time and within credit terms.
All businesses can have a credit score between 0 and 100, with the latter being the highest score.
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