Credit Rating

[Earl Smith]

I have a nice big order and I need to buy stock. So I went to my bank and asked them for an overdraft for a few weeks to see me through the order.
It will take 30 days before my invoice will be paid by the customer and I have 30 days to pay for the material. As the work will take a week to do I need roughly 10 days overdraft.
I have rarely needed credit from the bank. I borrowed 5,000 a few years ago and paid that off over two years. I dont have a mortgage and use my credit card rarely.
The crazy thing is that because I never ask for credit my credit rating is very low.

Yesterday I sat with my bank business manager, who has just learnt how to shave, and had to talk through the overdraft. It was like asking for blood.
I did get the overdraft but the bank made me feel very small. Almost like I was begging.

Anybody else had these problems?

[k21john]

Banking is not what it used to be, a few on hear will remember the days when one was on first name terms with their bank manager and he had the authority to lend upto 250,000 off his own bat, now if the computer says NO then forget it, bank managers these days have zero authority to lend anything...... ahhh the good old days.

[pw66]

I remember those days well. Most branches these days don't really have a proper 'manager'. Many years ago I could arrange an overdraft by picking up the phone...

[GoonerGary]

Spent six months on the best business plan ever for a photography business and got turned down. It wasn't a huge amount of money, but it was starting to emerge that banks were not lending to anybody. Don't think anything has changed.

[calvinabc]

we have tried very hard and have not needed any credit accounts with our suppliers even when some orders are several 000s, but the bigger you get it does become harder to manage the cash flow. we do not owe any suppliers a single penny. but life would sometimes would be easier if you could just put it on account. one of our suppliers you actually win to have a credit account and pay it off with in 7 days. so for us paying upfront we are losing money.

[GoonerGary]

It will take 30 days before my invoice will be paid by the customer and I have 30 days to pay for the material. As the work will take a week to do I need roughly 10 days overdraft.

Don't assume that they will pay on time.

[Earl Smith]

Don't assume that they will pay on time.

How right you are. These customers have been with me for about 8 years and have always paid on time. But there will always be a first time. ( But I hope its not "This time" )

[pw66]

If you genuinely only need 10 days overdraft, and know that you can pay it off, then it would be cheaper to get a dedicated credit card for stock. If you pay it off as soon as you get paid there will be no interest.
I do just that. I had a very low credit score and applied for a card 3 years ago, which was approved but only for £200 with horrendous interest. I use it solely for stock buying, and always pay it off as soon as I get paid. Only ever paid interest once, when a customer paid late. My credit limit has now risen to £2250.
I use it even when there are funds in the bank - but only for stock.
As long as you are disciplined, don't get tempted to buy that new printer you want, and pay it regularly, credit cards are your cheapest form of short term finance.

[socialgiraffe]

If you genuinely only need 10 days overdraft, and know that you can pay it off, then it would be cheaper to get a dedicated credit card for stock. If you pay it off as soon as you get paid there will be no interest.
I do just that. I had a very low credit score and applied for a card 3 years ago, which was approved but only for £200 with horrendous interest. I use it solely for stock buying, and always pay it off as soon as I get paid. Only ever paid interest once, when a customer paid late. My credit limit has now risen to £2250.
I use it even when there are funds in the bank - but only for stock.
As long as you are disciplined, don't get tempted to buy that new printer you want, and pay it regularly, credit cards are your cheapest form of short term finance.

Very good advice, it also has the added benefit of improving your credit rating in the best way possible.

In the UK, credit rating is only half the battle when it comes to finance, and business credit rating is an even bigger minefield. You can have the best credit rating possible but still not get credit. Likewise you can have an average credit rating and get credit for something you arguably can not afford. By getting a credit card and doing what PW66 says you are giving them the info they WANT to see, that is you borrow regularly and pay off regularly. Stupidly they do not look at the figures, so you could potentially spend £10.00 a month, pay off £10.00 a month and after a short while have a credit rating that will get you thousands!!!!!

[Earl Smith]

The "Credit" cards that are generally offered over here are ones where you pay off the whole amount each month ( no interest) . Not really a "Credit Card" I know but Germans prefer to have no debt, its part of their culture. Its only until recently that they are buying their houses, before that many of them rented.
It is possible to get "Credit cards" as we know them in England but they are not generally offered.
Overdraft is the way to go.