Credit. The world runs on it and chances are, so does your business. But what does it mean to have a good credit score and how does your business get one?
A credit score, simply put, is a prediction of your credit behaviour. But what goes into figuring out that score?
Your credit score is calculated for businesses using proprietary mathematical formulas formulated by credit bureaus. In Canada, the two main bureaus are Equifax and TransUnion. They do not divulge how these formulas work, but they use factors like payment history, delinquencies, length/history of accounts, the type of business credit you use and how frequently you use it.
Where do the credit bureaus get this information from? According to Equifax.ca, the bureaus gather information from a variety of sources. The primary sources are banks, industry groups, collection agencies and corporate registries.
This information is updated regularly, and scores are re-calculated as the updates are made. If there is a lot of activity on your credit, a lot of updates are performed. Businesses are scored on a numerical scale of 1 to 100. The higher the number, the better the rating.
In the case of a contractor working for a company, does a high rating guarantee a company pays its bills?
Yes and no. A higher rating means the company pays the bills to groups that report to the credit bureaus. They pay the credit cards, the loans, the taxes and all things that positively affect the credit scores they receive in a credit report. A high rating does not guarantee they pay their contractors or service companies when they should.
If a contractor does not send an unpaid invoice to collections or does not report to a credit bureau, then missed or late payments will not affect the credit report. A good score in a traditional credit report does little to help an oilfield contractor protect themselves.
So, how can you reduce this risk exposure? An Alberta-based startup aims to solve this problem for contractors and service companies in the oil and gas industry.
PayScore.ca is a new credit check tool developed especially for contractors and service companies in the oil and gas industry. It fills the blind spot left by traditional credit reports.
“We designed PayScore.ca to fill a gap we saw in the industry,” said Chris Simeniuk, founder of PayScore.ca. “We needed a fast, simple method to know if Company XYZ pays their contractors reliably. Current systems did not answer that, and folks were being taken advantage of.”
“Running a business has never been more expensive than today,” said Simeniuk. “Reducing the risk exposure to bad payers is critical to keeping cash flow alive. If you are not being proactive, you leave yourself open to being used like a bank and that can sink your business rapidly. We want to help folks reduce the anxiety of not knowing and get back to work with peace of mind. PayScore.ca provides that peace of mind.”
