Credit rating disparities cause concern among SMEs
Credit ratings and limits can be vitally important for businesses looking to grow, but new research has suggested that many are given wildly different results.
An analysis from Shelly Stock Hutter discovered that Experian, Creditsafe and Dun & Bradstreet all recommended different credit limits for the same firms.
The difference between the highest and lowest credit ratings from the agencies for the 100 companies assessed was 150%.
The research drew on examples that revealed one small business had three different credit limits, ranging between £1.5 million and £4.9 million.
Another ranged from £0 to £18,000 with rating variations of 4/100 and 83/100 – a considerable difference.
The wide range of results showcases the difficulties that small businesses can face when attempting to access credit.
The credit rating of a business can be influenced by several factors including account reference dates or alterations to a firm’s registered office.
An incorrect rating could make it difficult to gain credit from suppliers or to raise finance, with the research suggesting that it is simply a ‘credit rating lottery’ for some small businesses.
A wrong credit rating could also deter companies from chasing growth while they may also not offer terms to their customers that are credit worthy.
Should something go wrong as a result of an incorrect credit rating, it could spell disaster for the business concerned.
In instances where financial issues are evident, firms are encouraged to seek insolvency advice to see if there are processes available that can rectify the situation.
Greater transparency is needed among credit agencies according to the survey so that smaller firms do not get erratic credit ratings.
Otherwise thousands of businesses could face problem and their growth opportunities could be missed as a result.
Businesses can do their bit too by providing accurate details of their dealings so that more accurate results can be calculated.
By Phil Smith