How Late Payments Are Damaging SMEs Credit Profiles
Bills. They sit on your desk. They’re seemingly inert, but remarkably powerful. You’re stomach starts to do ‘The Lambada’ as you sift through them. You mentally prioritize who gets paid first. Experience guides you in this decision making process.
Unfortunately, your process could be flawed. While just about all of us know what it’s like to be verbally assaulted by creditors and vice versa, many SMEs are unaware of the silent consequences of paying their bills late.
One of these consequences is called a bad credit profile.
According to Christine Christian, Dun & Bradstreet’s CEO, a payment can currently be listed on your record if it is 60 days overdue.
So, how does this happen?
Very easily. All a creditor has to do is call a credit reporting agency such as Dunn & Bradstreet or Veda Advantage, furnish the appropriate paperwork and lodge a report.
How can this effect your business?
Generally it can negatively impact your business in two ways. First, it can hinder you ability when seeking finance from a traditional lender, such as a bank. When applying for a loan, the bank can (and will) lodge a request to a credit reporting agency for your file. Needless to say, the more complaints…well the darker the picture gets.
Next, it can also impact a suppliers ability to issue your business with credit. For instance, if a supplier has trade credit insurance with a company such as QBE, they are bound by that insurer’s credit terms which may (and probably will) prevent (credit) extensions to businesses with poor credit records.
What can you do?
Leigh Dunsford, Operations Manager, AR Cash Flow, contends prevention is better than cure. “Get on the phone and be upfront. If you’re going to be late, tell them (your creditor/supplier) the reason and then tell them the truth about how much you can pay and when,” said Dunsford. “Most creditors, will show some flexibility if you make an effort to be honest,” he continued.
And, what if they’re not flexible?
Dunsford recommends that you use a portion of your accounts receivables to settle your payments with high priority creditors. “We can give you up to 90% of the value of an accounts receivable within 24 hours. You can then use this to cover expenses, “ claimed Dunsford.
So it becomes a judgment call: Poor credit record VS a small admin fee from a factoring company?