Why Trade Credit Ratings Matter More Than Ever…

James Piper, CEO & Founder of Lightbulb Credit Ltd the UK’s leading Credit Insight, Improvement, and Monitoring solutions shares his thoughts…..

In the wake of COVID-19 and the ensuing recession gripping the UK economy, the importance of trade credit ratings has surged to previously unseen heights. These ratings are used by:

1. Lenders as part of a credit underwriting process to determine company’s financial health and creditworthiness – and ultimately their propensity to lend, how much, and the rate that is charged on the borrowing.
2. Suppliers when determining the level of credit to offer your business
3. Contract awarding bodies to analyse the strength of your business during the tendering process.

Given the economic uncertainties brought about by the current backdrop, lenders, contract awarding bodies and suppliers are more cautious and seek reliable indicators to assess the risk associated with doing business. Some of these will have tightened their criteria in response. 

Adding to these challenges, the trade credit rating agencies have reduced ratings and limits, particularly for certain sectors such as construction, manufacturing, and retail in response to the uncertain backdrop. 

 

Why a Whole Market View Matters

The ratings and recommended credit limits for a business can vary significantly across each of the credit rating agencies. While their decisions are mainly based on the same information filed at Companies House, each of the agencies have their own unique algorithms which put different weightings on the variables taken into consideration. 

It’s a familiar scenario for our broker partners to encounter situations where a client’s application is rejected based on a credit rating that starkly contrasts with their initial evaluation. This divergence often stems from funders relying on a different credit rating agency, thereby presenting a disparate depiction of the business’s financial standing.

 

Can My Trade Credit Ratings Be Improved? 

The good news is yes, they can! Lightbulb Credit have unique agreements with the agencies where they present your case to an analyst, sharing full and up to date information with them, all without this forming part of your publicly viewable data. 

All of Lightbulb Credit’s proposals are structured so that you only pay if they manage to improve your rating and/or credit limit to a pre-agreed level, making it risk free. 

Below are details of some of the results achieved for clients of Trusted Business Partner within just 5 working days enabling them to win more work, obtain improved supplier terms and access required funding at better rates.

Sector	Rating Agency Prior Rating	Rating Agency Prior Limit	Improved  Rating	Improved  Limit
Electrical Engineering	9/100	£0	100/100	£62,000
Online Retailer	22/100	£1,000	94/100	£64,000
Food Manufacturer	18/100	£500	71/100	£8,500
Construction Firm	Not Rated	£0	100/100	£2.5m
Home Security	7/100	£0	64/100	£11,000

 

What Does This Mean to Those Looking at Access Funding?

James Clinghan, Director of TBP – Trusted Business Partner shares his insights…

If we take the construction firm as an example, their low credit score meant that their suppliers would only give them a small credit limit as that’s all that their suppliers could insure them for. By getting Lightbulb in place, the limit improvement allowed them to get better terms with their materials suppliers and lower usage of their external funding.

It has also allowed them to get better rates on their asset finance and quicker decisioning.

The Home Security Firm was installing security for PEP’s and people high up within the local government. A long-standing contract they had on review had a new term that required them to show balance sheet improvement and a good business credit rating. Below the credit rating, they would have to have a cash-backed bond which they couldn’t afford. The business was a lifestyle business and never took any consideration of their credit rating. Getting Lightbulb involved improved their credit rating above the required threshold 

We have numerous other examples with Lightbulb Credit where they have helped our clients. The answer isn’t always just to throw money at a problem – Sometimes you have to look deeper into the client to understand if there’s a different way of supporting.

 

At Trusted Business Partner, we are committed to helping our clients navigate these complexities. By partnering with industry leaders like Lightbulb Credit, we provide our clients with the insights and tools needed to strengthen their credit ratings and secure the financial support necessary for growth.

If you’re looking to improve your trade credit ratings and access better funding opportunities, contact us today to learn how we can help.