An investigation by accountancy firm Shelley Stock Hutter found that three of the main credit agencies were found to return different credit ratings and suggest different credit limits for the same SMEs.
When credit ratings for SMEs from Dun & Bradstreet, Experian and Creditsafe were compared, huge disparities were found.
One credit agency recommended no credit limit for Company N, whilst another credit agency recommended £50,000 for the same company.
In another instance, with Company J, one credit agency recommended a credit limit of £43,000 whilst another agency recommended a credit limit of £17.5m.
The divergence in results is significant. Depending on which credit agency is being used, SMEs could easily find themselves unable to get sufficient credit, secure finance and grow their business, unable to trade with suppliers or lease equipment. In the worst case scenario, businesses could be forced to cease trading.
This is particularly worrying in the economic climate when so many SMEs need to prove their viability to investors, suppliers and banks.
“It is very much a lucky dip for SMEs when it comes to getting a fair credit rating and recommended limit,” says Bobby Lane, partner at Shelley Stock Hutter.
“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 information they are currently submitting to the agencies could fail to present a true picture of the performance of the business.”
Currently, there are a number of factors that can affect a business’s credit rating, including:
changes in accounting reference date
changes in officers of the company
moving registered office
the balance sheet net assets
other issues, including the number of finance providers, statutory arrears or county court judgements
Bobby Lane adds that to ensure you get the fairest credit rating possible, you should approach credit agencies with explanations of the issues affecting your business. “This way the credit agencies can gain a much better understanding of the position of the business,” he says.