A strong creditworthiness profile is paramount for any company in Singapore, regardless of its size or industry. It serves as a financial report card, indicating your company’s ability to meet its financial obligations. High creditworthiness not only facilitates easier access to financing, such as loans and credit lines, but also opens doors to more favourable terms with suppliers, partners, and even potential clients. Improving your company’s creditworthiness is a continuous process that involves strategic financial management and transparent reporting.

 

What is Company Creditworthiness?

Company creditworthiness refers to a lender’s or creditor’s assessment of a business’s ability and willingness to repay its debts. This assessment is based on various factors, including financial history, current financial health, industry stability, and management quality. A strong credit rating signals reliability and reduces the perceived risk for potential creditors.

 

Key Factors Influencing Creditworthiness

Several elements contribute to a company’s creditworthiness:

 

1. Financial Performance and Health

This is arguably the most critical factor. Lenders meticulously scrutinize a company’s financial statements to gauge its profitability, liquidity, and solvency.

  • Profitability: Consistent profitability demonstrates a company’s ability to generate earnings, which can be used to service debt.
  • Cash Flow: Positive and stable cash flow is vital. It indicates that the company has sufficient liquid assets to meet its short-term obligations and operational needs. Companies must ensure they can pay their debts as they fall due.
  • Debt-to-Equity Ratio: A healthy balance between debt and equity indicates responsible financial leverage. High debt levels relative to equity can be a red flag.
  • Asset Quality: The nature and liquidity of a company’s assets are also considered. Strong, liquid assets can provide security to lenders. Directors have a duty to ensure that current assets are not overstated and are valued at an amount they might be expected to realise in the ordinary course of business. They also need to make adequate provision for writing down non-current assets if their value exceeds what is recoverable.

2. Payment History

A company’s track record of paying its bills and debts on time is a strong indicator of its financial discipline.

  • Prompt Payments: Paying suppliers, creditors, and loans by their due dates demonstrates reliability. Late payments can negatively impact your credit score.
  • Debt Management: Showing a consistent ability to manage existing debt effectively builds trust with potential lenders.

 

3. Statutory Compliance and Reporting

Adherence to regulatory requirements, particularly those related to financial reporting and statutory filings, is crucial.

  • Accurate Accounting Records: Every company, its directors and managers must keep such accounting and other records as will sufficiently explain the transactions and financial position of the company. These records must enable true and fair profit and loss accounts, balance-sheets and any documents required to be attached, to be prepared from time to time. All such records must be kept in such manner as to enable them to be conveniently and properly audited.
  • Timely Filings with ACRA: Companies must submit annual returns, including audited financial statements (unless exempt), to ACRA. These public records are often reviewed by credit bureaus and lenders. The accounts of a company are effectively made public, allowing any person dealing with the company to obtain a copy of the company’s annual returns, together with its accounts, from the Registry for analysis before making commercial decisions.
  • True and Fair View: Financial statements must present a “true and fair view” of the company’s profit and loss and financial position. This means they must be prepared under recognised accounting principles. Directors have a duty to ensure this accuracy.
  • Directors’ Report and Auditor’s Report: These reports, which accompany the financial statements, provide additional insights into the company’s operations and financial health.

4. Management Quality and Stability

The experience, reputation, and stability of a company’s management team play a significant role. Lenders assess whether the leadership can effectively navigate market challenges and make sound financial decisions. This includes ensuring directors are conversant with accounting principles or seeking professional assistance if not.

 

Strategies to Improve Creditworthiness

1. Maintain Impeccable Financial Records

  • Implement Robust Accounting Systems: Ensure your bookkeeping is accurate, up-to-date, and compliant with Singapore Financial Reporting Standards (SFRS).
  • Regular Financial Reviews: Conduct frequent internal reviews of your financial statements to identify and address any discrepancies or areas of concern promptly.

 

2. Prioritise Timely Payments

  • Cash Flow Management: Implement effective cash flow forecasting and management strategies to ensure you have sufficient funds to meet all your financial obligations on time.
  • Negotiate Payment Terms: Where possible, negotiate favourable payment terms with suppliers that align with your cash flow cycle.
  • Monitor Accounts Payable: Keep a close eye on your accounts payable to avoid overdue invoices.

 

3. Manage Debt Prudently

  • Avoid Excessive Borrowing: While debt can fuel growth, excessive leverage can signal financial instability. Maintain a healthy debt-to-equity ratio.
  • Diversify Funding Sources: Relying on a single source of financing can be risky. Explore various options, including equity financing, to diversify your capital structure.
  • Clear Existing Debts: Work towards reducing existing debts, especially high-interest ones, to improve your debt-to-income ratio.

 

4. Ensure Statutory Compliance

  • Timely Filings: Adhere strictly to ACRA’s filing deadlines for annual returns and other required documents. This reflects positively on your company’s governance.
  • Transparency: Ensure your financial reporting is transparent and accurately reflects the company’s financial position, as required by the Companies Act. Directors should ensure the accounts are properly drawn up to give a true and fair view.
  • Engage Professional Services: If accounting and compliance are not your core competencies, engage professional corporate secretarial and accounting services. This ensures that legal and financial requirements are met accurately and on time, demonstrating professional management.

 

5. Build Strong Banking Relationships

  • Consistent Banking History: Maintain a consistent banking relationship and demonstrate responsible financial behaviour within your banking facilities.
  • Communicate with Lenders: Be proactive in communicating with your bank about your financial performance and future plans. Transparency can build trust.

 

6. Monitor Your Credit Report

  • Regular Checks: Periodically obtain your company’s credit report from credit bureaus to monitor your score and identify any inaccuracies or potential issues that need addressing.

 

Improving your company’s creditworthiness is an ongoing commitment to sound financial practices and regulatory compliance. It provides a foundation for sustainable growth and strengthens your company’s position in the marketplace.

Navigating the complexities of financial reporting and compliance can be challenging. If you require expert assistance to enhance your company’s financial health and ensure robust compliance, the experienced team at Raffles Corporate Services Pte Ltd is here to help.

For further assistance or inquiries, you can contact the Raffles Corporate Services team via email at [email protected].

Yours sincerely,

The editorial team at Raffles Corporate Services