Algorithms and your business credit score

Algorithms affect our lives in many ways.  The A level grading fiasco last summer led to public outrage over their use. This shone a spotlight on the fairness and transparency of the use of artificial intelligence.

Organisations are increasingly using automated information to make decisions.  In a business context this is most apparent in how credit scores are calculated.

Most people are familiar with the idea of a personal credit score. It is also important to know your own business score. Knowing the credit scores of your suppliers and customers will also help you identify any that are in some form of financial distress.

A poor business credit score can result in the following:

· Not being able to access lending.

· High-interest rates on borrowing.

· Low/no supplier limits, meaning you may have to pay for goods/materials upfront.

· Failure to win new business (potential clients will often look at credit scores before engaging with suppliers).

There are simple tips that business owners can follow to ensure their score is as healthy as possible:

· Pay your bills consistently on time. Payment history is a key indicator of how you are managing your cash flow.

· File Companies House documents on time. Filing late could be an early indicator of financial distress.

· Avoid county court judgements.

· Manage your personal credit. Your own personal credit score is used as an indicator in calculating your business credit score.

With company accounts now being filed showing losses/reductions in net worth that arose during COVID, it is likely that businesses will have their credit ratings downgraded. Many businesses also carried out reorganisations during this time, to protect assets by transferring them to a holding company.  This could have the unintended consequence of negatively affect their credit scores.

If you have a business credit score that does not reflect the true position of your company it can be difficult to have this corrected. This is complex because there are five main credit rating agencies, all using different algorithms. Your accountant will be able to assist you, by involving a specialist who can review and repair your credit rating.

This article was written by Chris Kelly of Jacobs Allen Chartered Accountants