If companies need a loan, the question of their creditworthiness immediately arises. Creditworthiness, also called creditworthiness, means the ability and the willingness of a debtor to meet his payment obligations on time and in full. This is of course particularly important for potential financiers, because the capital allocated should also flow back in full and most likely.
As part of rating procedures, credit institutions therefore carry out mathematical-statistical evaluations of all influencing factors of creditworthiness and determine an end value: the rating. This “note” ultimately decides whether to accept or reject the credit request and the credit conditions. The poorer the credit rating, the higher the interest that companies usually have to pay to cover the bank’s increased risk.
We summarize the 9 most important pieces of advice by which you can increase the creditworthiness of your company.
1. Liquidity planning
A healthy company has a thorough and sober liquidity planning. Granted credit lines are not overdrawn, direct debits do not decrease, in short: your company should illuminate the deposits and withdrawals in connection with your business so well that liquidity bottlenecks are avoided as far as possible. All measures that increase the stability and planning security in connection with your sales and minimize expenses increase the liquidity and creditworthiness.
2. Corporate management & controlling
Good liquidity management includes a plausible estimate of sales and earnings. Consistent corporate management and the use of controlling instruments have a serious effect: They show your bank that you also have an eye on your future earnings position and you score a plus when evaluating your creditworthiness.
3. Optimize equity ratio
When assessing the creditworthiness of a company, the equity ratio, which expresses the ratio of equity to total assets, plays a central role.
A high equity ratio is very valuable from the perspective of the lender, because the higher the equity ratio, the higher the financial stability and independence of the entrepreneur towards the lenders. In the event of bankruptcy, this capital can only be deducted once all creditors have been serviced. As a rule of thumb, the share of 30% of total assets is worth striving for.
4. Leasing instead of buying
The alternative of leasing offers one possibility to reduce the total assets of your company. Company leasing, also known as commercial or business leasing, is a financing alternative for companies in which the object to be financed (leasing object) is not acquired, but is financed by a lessor.
Companies that want to optimize their creditworthiness can thus avoid all large purchases (systems, machines, etc.) or split their costs over several periods. Credit lines are used less and credit risks are assumed by the lessor in some leasing models (finance leasing) – this is good for your creditworthiness.
5. Sell your receivables with factoring
Another way to reduce total assets and optimize your equity ratio is to use factoring. Factoring is an alternative to short-term debt financing, in which a financing institution (factor) purchases your company’s receivables and advances them until they fall due. In the event of surprising payment defaults by your customers, this alternative offers you a stable cash flow. If all receivables are removed from the balance sheet, the equity ratio improves and there are better credit ratings.
6. Pre-finance your purchases through finetrading
When pre-financing orders, companies need valuable liquidity, which in turn has a negative impact on their creditworthiness. If there is no financial means to be able to make advance payments, the use of finetrading is suitable. The Findtrader buys goods for your own account on behalf of your company and enables you to make valuable discounts by paying immediately within the discount period. Finetrading offers companies the added value of immediate liquidity improvement and an increase in sales, since additional projects can be realized.
Furthermore, your negotiating position and your image with the suppliers will be significantly strengthened by the quick settlement of goods purchases. Better prices and all discounts and rebates reduce expenses and maintain your liquidity, another step towards a better rating.
The use of debt collection – be it less popular – is also a good way to improve your credit rating. If unpaid bills put pressure on your liquidity, you can use the debt collection solution at any time if your debtors fail to meet outstanding payment amounts beyond the agreed payment term. According to $ 286 USD, you can legally claim the costs of this alternative from the debtor.
8. Sound investment and financial planning
Solid investment and financial planning can also significantly increase your liquidity and creditworthiness. High purchase amounts in connection with long-term investments (IT, machines, office buildings) burden your liquidity situation. Some follow-up financing of your due loans can also be costly. To manage dependency on short-term financing, the rule of thumb is that equity and long-term debt should be at least as high as fixed assets. It is often worthwhile to use development banks to bridge liquidity bottlenecks.
9. Information & communication
Finally, as an entrepreneur, you must also keep an eye on the subjective aspects of your credit rating. If you would like to finance an important project, it is best to prepare convincing documents for your credit institution so that the lender can get a holistic picture of your project. If liquidity bottlenecks occur in your company, then act proactively and get advice from your bank on possible solutions. This proves to your lender that you recognize and correct imbalances early – an important signal for your creditworthiness.