Data is key to helping SMEs navigate the current economic climate
Job vacancies are soaring, unemployment is down, and redundancies remained low ahead of furlough ending last month. Yes, in the lead up to Rishi Sunak’s landmark post-lockdown budget, the signals – at least at first glance – appear encouraging for the UK economy.
But look closer and there are still challenges ahead for Britain’s small businesses. From fresh complications with exporting and importing goods, to the labour shortages causing the aforementioned widespread vacancies, there’s more to this picture than a positive rebound from lockdown.
Add into the mix that, according to the Bank of England, the number of SMEs in possession of a greater debt burden than they had pre-pandemic is up, and it’s certainly not all coming up roses just yet. Indeed, the FSB have just published results of a SME survey indicating 440,000 UK SMEs could be forced to close as a result of late payments from their customers.
In fact, with as many opportunities materialising from the perfect storm of Brexit and the pandemic as catastrophes, it’s become increasingly tricky for SMEs to know which way is up. And trickier still, business owners are having to prepare for future potential upticks, downturns and everything else in between.
What’s clear is that, now more than ever, SMEs need to be protecting their assets to stay buoyant. And that goes much deeper than bricks and mortar alone. SME owners must consider their credit score, how they can shield it from the economic flux and how they can even look to improve it as we move towards the new financial year.
Below, I explore two ways in which small businesses can use the power of data to get ahead.
1. Use data to demonstrate your business credibility
It’s no secret that business owners are also being weighed down by late payments that significantly impact all important cash flow. In fact, our trade data shows a deterioration in overall UK payment performance from 47.3% in March 2020 to 41.8% in December 2020, which reflects the increasingly tough business environment.
That means finding external resources for funding to temporarily ease the burden is crucial. To achieve this, SMEs will require reliable data to help evolve their business model so they can maximise their potential in the current environment.
For SMEs to establish business resilience in order to access the funds they need, maintain cash flow, all while ensuring their suppliers and partners continue to value them and help to future-proof their operations, it’s essential they protect their credit score and business data.
To ensure this, SMEs are able to use Dun & Bradstreet’s Live Business Identity which records their business credit scores and ratings in the cloud and is designed to help other organisations gauge risk and understand a business financial health – which is valuable for all parties involved.
The analytics derived from the scores and ratings can help businesses to decide whether to extend business credit to a customer or if signing a contract with a supplier is wise – so having a good score really works in their favour! It’s also worth bearing in mind that a bank can consult the business credit report when deciding to offer a loan.
Most importantly, small businesses can use the information in their business credit file to demonstrate their credibility themselves.
2. Use data to improve your business score
With over half (54%) of small business owners saying the pandemic has already negatively impacted their business, it’s important that all business owners remain cognisant of their own business score if they wish to be deemed favourable by potential suppliers or partners. Whether a business is intending to apply for a Government loan, for instance, or simply wants to implement best practice, it’s important that SMEs proactively manage their credit profile in the modern day.
In order to do this effectively, SMEs need to ensure their credit profile is up-to-date, accurate and – perhaps most importantly – complete. Similarly, SMEs should be tracking changes that could impact that score on an ongoing basis, and that includes anything from developments with their suppliers, financers, customers or potential future business partners; all of which credit professionals should be alerted to.
Conveniently, SMEs can record their data in their Dun & Bradstreet business credit file which can then be searched for by other organisations interested in doing business with them. After which point, our scores and ratings are awarded based on a number of factors.
For example, the PAYDEX score measures a business’ credit history and payment trends. The score is divided into three risk categories, with 0 to 49 indicating a high risk of late payment, 50 to 79 indicating a moderate risk and 80 to 100 indicating a low risk.
Once a business profile is established, we assess multiple factors including firmographics (size, location, age, industry), financial accounts, secured lending and historical payment performance to create an overall rating of the business’ creditworthiness.
Looking ahead, data will continue to be a vital tool in the armoury for SMEs as they work to keep their businesses afloat. Having access to relevant and timely information will be essential to assessing the full impact of the pandemic on their own business as well as their suppliers and customers.
Credit intelligence and data on supplier relationships will help to manage risks, and data on potential new clients can support more effective targeting and investment in sales and marketing activity – so SMEs need to make sure that their own data and credit score paints a clear and honest picture as we move out of lockdown and towards a better “new normal”.