According to June 2021 data from Illion, Australian small businesses are not great at paying their bills on time. Not surprisingly, the effects of the COVID pandemic shows a general worsening in late payment times, after almost a decade of improvements.
This, in turn, compromises their competitiveness and survival. After all, late payments are a possible indicator of solvency. And who wants to do business with a company that may not have long-term financial security.
Late payment can lead to more financial and administrative costs, reduce the potential for investment opportunities, damage business relationships and fuel business uncertainty.
This is why it is vital that as a small and medium businesses owner, you’reyou are aware of your company’s credit score. This allows you to understand your financial viability and act to fix any outstanding issues.
This knowledge can also help you if you want to borrow capital to expand your business, or if you are setting up (or changing) trading terms with your supply chain.
Why is my credit score important?
A high credit score basically tells people – from major project owners to your stationery supplier – that you pay your bills on time. It gives you an edge when tendering for major projects, because you can be certain the large project owners will be undertaking due diligence on your finances
Not only that, but a good credit score also helps you get business finance at a low interest rate, plus favourable payment terms from suppliers. You are likely to be able to get longer payment terms, which means better control over cashflow and, unless you default, has the bonus of improving your score even more.
Your credit score is typically a number from 0 to 1200 points. The closer you are to the maximum, the better your financial viability. It takes into account payment information, public filings (for example ASIC), court judgments, payment defaults, collections, and other credit. It allows your creditors to predict whether you will pay them back in time.
If you want to know if a loan will be approved, and on what terms, the answer is probably in your credit score.
And unlike your personal credit record, your business score is publicly available to anyone willing to pay for them. Including your potential clients and suppliers. And your competitors.
By understanding your business’s past financial history, you have some control over your business score. And if you review your score and believe it to be incorrect, you can get credit bureaus to update your information. But make sure you have proof first.
Stay ahead of your competitors
Knowing your credit score – and how it works – help you stay one step ahead of competitors who don’t know theirs. Of course, you don’t need to know your credit score to run a business, but knowledge is power. And the more you know, the more likely you will be one of the 40 percent of small and medium businesses in Australia that survive more than 3 years.
If you are still in start-up mode, you can quickly improve your credit history by:
- paying bills on time
- opening multiple lines of credit, allowing you to build a history through varies channels
- taking advantage of credit options (it’s not enough to have a business credit card, you need to use it)
Although you can’t control everything that effects your credit score, controlling what you can – and being aware of what you can’t – will open up opportunities you never knew existed.
Through our partnership with Equifax, ICN Gateway paid subscribers, that hold a current ACN and Equifax has sufficient data on, can download their credit score. This real-time data gives you snapshot of your company to see where you sit compared with competitors, and what your potential partners, suppliers and lenders are seeing.
You can find out more about accessing your Equifax score through an ICN Gateway subscription here.