The lucky dip of credit rating

CREDIT rating agencies’ recommendations have always caused anxiety and bafflement to small business owners. But now according to accountancy firm Shelley Stock Hutter there is proof that there is little rhyme in the agencies’ reasons: the firm recently conducted an investigation comparing the three well-known credit agencies, Dun & Bradstreet (D&B), Experian and Creditsafe. The investigation found that the agencies could sometimes return wildly different credit ratings and limits for the same small business. For example, Creditsafe recommended one small business a credit limit of £43,000 while D&B recommended the same business £17.5m.

Bobby Lane, a partner at Shelley Stock Hutter, blames this state of affairs on small and medium sized businesses’ (SME) failure to submit up-to-date management information to credit agencies: “In some cases, a good credit rating could make or break a business. Many SMEs are unwittingly putting their credit chances at risk – they need to realise that the information they are currently submitting to the agencies could fail to present a true picture of the performance of the business. I have seen cases where many strong businesses have low credit ratings and as a result find it difficult to obtain terms with their suppliers.”

Entrepreneur Natalie Ellis, the founder of Prestige Pet Products, says: “We had a huge problem with our credit rating when we were starting out. It turned out that the problem was caused by an error on our Companies House records. It goes to show how important it is to check and supply the most up-to-date information.”

Shelley Stock Hutter have found that SMEs improve their chances of obtaining a better credit rating if they ensure that the credit agencies have the most up-to-date accountancy reference date for the business, as well as registered address, the balance sheet net assets and key staff members’ names.

While it is true that some agencies do not accept external additional information, others do.

Working out which ones do can be a little tricky. None of the agencies advertise accepting additional information. Lane suggests that it is basically a matter of calling the agencies and trying your luck. If they refuse to accept the new information, you should try another agency, advises Lane.