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6 reasons why a business credit report is invaluable

Article provided by Experian

A business credit report has become a litmus test for companies that want to establish solid foundations and build trusted reputations. It’s an important part of putting your business on the map, especially when it comes to credit checks, getting credit, growing, and expanding your operations. Why? Because it showcases your business and its creditworthiness and proves to financial institutions, partners and suppliers that you are a financially stable business.

Most companies only think of a business credit report when they’re asked for one. Or when they’re alerted to the fact that there may be something on their credit report that is affecting their ability to be granted additional credit facilities. However, this report should be top of mind for every business owner because it’s more than just scoring and weighting, it’s an important business tool. A business credit report ticks several very important boxes. Each one giving you greater control over your credit worthiness, your financial health, and your business relationships. Here are six reasons why your business report is your key to long-term success:

1. A picture of financial stability

Your business credit score shows you, and any lenders or suppliers you are planning on doing business with, a very clear picture of your financial health. This score will influence the amount of credit that you may be granted, the credit terms offered to you, the interest rates you’ll pay, and the interest of potential investors. It is imperative that your business credit report is checked regularly in order to verify the information and to ensure that its kept accurate and up to date. Sharing as much information as possible with the credit bureau shows that there are no hidden agendas, and that the business operates in a credible way.

2. Stay ahead of your credit score

You can use your business credit report to stay abreast of any changes in your business credit score so you can identify any problems before they hit your bottom line. By being aware of your business’ credit score, it is easier to make informed decisions and also address the gaps that may have an impact on your business.

3. Work with the credit bureau to develop your business credit report

Experian can incorporate audited financial statements into the score of your business. These can be supplied annually after sign-off from your accounting officer or auditors. If your business has limited information on the credit bureau, Experian can use owner supplied information that will be verified, to update your business credit report.

4. Access to credit facilities

As your business grows, you may want to invest into new products and services, or into more employees, so you can keep up with demand. This requires capital, of course, and lengthy conversations with financial institutions and lenders. Most, if not all, of these institutions will require a business credit report before they even start down the long road to a business loan. So, if you have immediate access to your business credit report and fully understand what it says about your business, you have jumped over one of the common hurdles with ease.

5. Regulatory requirement

If you are registered business in South Africa it is imperative to pay your annual returns with CIPC each year. This will ensure that your business is kept in an active status and will ensure that Experian has the most accurate details on your business. Failure to pay these annual fees will result in your business being put into a deregistration process and the score will not be available to lenders doing enquiries on your business.

6. Avoid bad credit

The ability to see business credit scores isn’t only for the benefit of lenders and suppliers that may want to lend to or invest in your business. You can also use them to assess your own financial risk before you extend credit terms to your own customers. Credit reports are an important background check that helps small businesses owners to ensure customers – particularly those who they are about to embark on business with – are able to make timely and regular payments. This ultimately helps to safeguard your business against risks, such as bad debt, that could threaten your own business’ financial stability.

Properly utilising business credit reports can give small business owners the edge and agility to respond and react to issues well in advance, and plan for worst case scenarios.  Understanding your personal as well as your business credit report serves to ensure a proactive management of one’s business wellness – and is a welcome tool in an entrepreneur’s toolkit.

The adage of ‘prevention is better than a cure’ always rings true for good credit health. This often involves taking pre-emptive measures such as budgeting for credit, understanding the exact payback amount and keeping debt repayments between 20% and 30% of monthly expenses.

As one would manage personal debt – such as paying accounts on time, giving letters of demand due attention and arranging alternative arrangements during difficult months – it is important that businesses follow the same to protect their credit reputation and take control of their financial health. 

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