While it’s never been exactly easy to run a small business, recent years have brought significant new challenges, including changing demand, supply chain issues and hiring headwinds. All of this is made trickier still by the fact that SMBs have long struggled with financial access from traditional lenders – in 2022 bank lending to UK small businesses fell by £14bn.
For a business owner, it can feel like the deck is stacked against you: the lender holds all the cards, with small businesses often lacking the visibility, tools and understanding to even see their lending and credit potential – let alone change it. Accountants looking to support their small business clients’ success have faced the same challenges. After all, accountants are used to being the port of call for business KPIs and risk metrics – debt, EBITDA, P&Ls and debtor days – but bringing credit scores into the conversation wasn’t a practical option.
Today, however, the increased integration of digital accounting tools and expanded access to data has created a brand new opportunity for accountants to help where it’s needed most – making credit work for clients, finally.
Here we explore how accountants can help their clients understand, track and improve their business credit score, and the advantages it can bring for firms and small businesses.
Credit scores: the invisible elephant in the room
Credit scores are a fact of modern life – even though for most people they’re little understood and, occasionally, willfully ignored. In the business world, credit scores serve as a measure of a company's creditworthiness, providing a snapshot of its financial health based on a range of publicly held data.
Though arcane, these scores hold a lot of power in a business and play a key role in influencing key decisions, such as securing funding, negotiating terms with suppliers or performing due diligence on contracts.
For small and medium businesses (SMBs), having a strong credit score can pave the way for business growth and stability. A low credit score on the other can leave you stuck with high interest rates, supplier scepticism and limited borrowing options. A credit score that’s trending downwards can also be a key indicator for risk – the credit canary in the coal mine – but too often this crucial information is hidden from owners.
Who benefits from credit scores?
The reality is that for much of their existence, credit scores serve as a tool that works far more in the interest of lenders and institutions than businesses.
After all, traditional financial institutions often have complex and opaque criteria for calculating these scores, making it difficult for SMBs to keep track or even understand what influences their score. Even though this information is crucial, it remains an invisible elephant in the room, when it comes to sourcing credit, with many businesses unaware of their credit standing or how to change it, with just 29% of businesses keeping tabs on their credit score, and just 24% knowing how to improve it.
- The impact of this information gap is serious. A poor or unknown credit score can have significant implications for a businesses ability to manage their financial affairs efficiently, including.
- Limiting their access to competitive funding options
- Paying higher interest rates
- Impacting payment terms with suppliers
- Blocking key contracts and growth opportunities
Meanwhile, a high credit score can enhance their reputation, increase their business credit limit, and help them negotiate better supplier terms. With the right tools, small businesses can have more control over their credit score than they might think - by improving their own financial processes and refreshing the data held by credit providers, business owners can change their financial potential nearly instantly.
Every time your firm files accounts it impacts a client’s credit profile, you also have the opportunity to revise and improve your clients’ credit rating – opening up new possibilities for your clients in the areas that matter most. But to make the most of this, SMEs need help from their advisors. Accountants are ideally placed to integrate credit support and improvement into their services – but this requires a new approach to sourcing and analysing credit information.
Modernising the approach to credit
SMEs and accountants face three key issues when it comes to making the most of credit opportunities.
- Access: With data stuck in specialist systems, accountants struggle with getting timely, accurate credit information when they need it, in sufficient detail and depth
- Timeliness: Due to the way credit bureaus share data, credit information is often out of date, based on previously submitted accounts, meaning that a businesses borrowing potential can be based of a completely out of date picture of their financial health
- Control: Even when they can see credit information, updating or improving it can be slow, inefficient and seemingly not worth the effort, holding SMEs back from opportunities.
Solving this requires centralising credit data, combining it with other financial data and using this holistic picture to help guide better decisions. The Capitalise platform brings credit info into the heart of your practice and your clients’ businesses – integrating with external data sources and your core systems to help you manage credit alongside other key financial KPIs.
Capitalise is integrated directly with Experian, one of the leading credit bureaus, giving accountants access to in-depth analytics to comprehensively understand their clients’ financial standing, visibility over changes and risks to their credit score and, crucially, the ability to update and revise clients’ scores in seconds with our Credit Review Service (CRS), directly from the platform.
Using this data, you can help demystify credit scores, improve transparency and provide the control over their financial health that they need, updating scores regularly in line with their changing circumstances.
Firms and clients can benefit from:
Full access to Experian business credit reports
A clear view of credit risk factors
Integrated credit checks with a funding marketplace from 100+ lenders.
Ability to execute a Experian Credit Review Service that enhances credit scores and ensures their accuracy with the most up to date information
With the right information, access and control, accountants can offer a more holistic risk, credit and financial management service that improves every aspect of your clients financial wellbeing.
Offering credit as a service
Credit support and advisory is a natural extension of the services many accountants already provide – indeed for some it’s almost the missing piece. Through the Capitalise platform, accountants can offer credit as a more comprehensive service, blending it with other financial support to improve end-to-end client value:
- Comprehensive debt management: Monitoring credit risk alongside debtor days to manage financial reputation from money in and out of the business
- Agile funding and cash flow management: Not only finding credit opportunities to improve cash flow, but building value-adding processes that improve long term borrowing potential, rates and supplier choice
Contract planning and optimisation: If clients are pitching for large contracts, accountants can work to get them in the best possible position and win better terms
- Enhanced advisory: By integrating Capitalise with your cloud accounting platform, you can have more in-depth conversations with clients about their long term financial planning with a full picture view of their numbers.
Capitalise integrates with all major cloud accounting packages, slotting into your existing workflows to help you create a connected service offering that offers a full perspective of your clients’ needs, while delivering long term value.
The 360° Accountant
With commercial, regulatory and market conditions changing faster than ever, SMEs need the right information, support and flexibility to keep moving forward.
With financial data becoming more accessible, accountants have a golden opportunity to reposition themselves as a 360° support for their clients, covering not just day to day financials, but long term reputation, risk and credit management – but this starts with the right information on your side.
To find out how Capitalise can supercharge your client conversations in 2023 and see the full power of our Credit Review service yourself, get in touch with our team and book a free demo.