Trust is a vital part of business and being sure that any potential customer can pay for your products and services is essential to ensuring a continued cash flow.

Whilst ensuring accessible payments options and easy to use invoicing and customer management systems are essential parts of ensuring a healthy cash flow, another aspect is ensuring that any customer pays efficiently or have the ability to pay if they use a credit or lease system.

One tool cash flow consultants use to test potential customers is the credit rating or credit score.

Often misunderstood, credit ratings are an effective tool to test whether customers are able and willing to pay on time and is calculated using a range of factors. Many of these are related to finances but some look at other, relevant non-financial factors as well.

Financial Factors

Credit ratings will primarily focus on financial factors, particularly for individuals. Factors such as turnover, current assets, any current loans or creditors, long term liabilities and revenue generated will be factored into a credit score.

Most importantly for businesses, payment history will be a factor, so missed payments can have a major effect on a person’s credit score.

Non-Financial Factors

What is less known is other factors that are included in a credit score that are not directly linked to its finances. These are included to highlight character issues that may affect their ability to pay.

Any county court judgements (CCJs), bankruptcy or administration filings on their record will be taken into account, as well as being on the electoral roll, and previous searches made against you.

The latter factor is used because it can be an indication that a customer has made several credit applications recently and is more of a high-risk customer.