What is a business credit profile?

Your business credit profile reflects the creditworthiness of your business. It is a record of your business’s financial history, payment behaviour and debt management and is compiled using various sources of information.

Lenders, suppliers and business partners can use your credit profile to assess the financial health of your business. It is important therefore to manage this aspect of your business finances.

How can my business establish a credit profile?

To have a business credit profile, you must register your business as a separate legal entity with the Companies and Intellectual Property Commission (CIPC).

You also need to set up business bank accounts to separate your business and personal credit histories. These bank accounts can include a current account for day-to-day transactions, a savings account to deposit surplus funds that can be used in future, and a merchant account for card payments.

You can also use business credit cards and loans to build up a good credit history. If you have lines of credit with suppliers who disclose your payment history to the credit bureaus and pay your debts timeously, it will improve your business credit profile. Lastly, ensure that your business’s taxes are up to date with the South African Revenue Service (SARS).

How does the credit profile affect my business?

Your business may require access to funds for various reasons, as you may not always have cash on hand. If you need funding to expand your business or to tide you over due to temporary cashflow issues, your business will need credit.

Potential lenders will consider your business credit profile. A stronger credit profile will help you get greater access to finance at more favourable terms, saving your business money over the longer term.

Suppliers and vendors may also offer you better prices or payment terms, strengthening your purchasing power and enabling a more flexible cash flow management.

On the other hand, if your business credit profile is poor, you may find it difficult to secure credit, and if you do, it will come at a higher interest rate. Having a healthy business credit profile makes good business sense.

What is recorded in my business credit profile?

The report compiled by the credit bureaus is based on a variety of sources, including credit provider and trade creditor data, which includes your business’s utilisation of credit, it’s history of making payments and the length of its credit history.

Your business’s credit report includes your business’s payment history to both lenders and suppliers and its history of credit enquiries.

If your business is using a large portion of its available credit, it could suggest the business is battling to operate without credit and your business may be overextended.

Details about court judgments against your business or any defaults it had on repayments are also listed.

Bond and property information is obtained from the Deeds Office.

Information on the directors and company information such as registration and VAT numbers are obtained from public records held at the CPIC.

All this information is used to calculate a credit score which may range from 1 to 100, or 300 to 850, depending on the credit bureau.

Other criteria that may affect your credit score include whether you operate in a high-risk industry, as well as the size and age of your business. Larger, more stablished businesses are seen to be less risky than smaller ones.

How can I improve my business credit profile?

Managing your credit report enables you to be more strategic when applying for credit. There are several steps that you can take to improve your credit profile over time:

Regularly check your credit report to ensure accuracy. You are entitled to one free report per year from each of the credit bureaus. This allows you to see what lenders see, such as your payment history, defaults, judgments and credit profile. Address any inaccuracies or disputes immediately.

Pay your creditors on time. Setting up automated payment systems prevents late payments.

Pay off debts to reduce your credit utilisation.

Prevent payment problems which could lead to legal issues. If you are having problems paying, communicate with your creditors and try to renegotiate payment terms rather than making late payments and harming your credit profile.

Manage your business cash flow to avoid relying on revolving credit.

Ensure a positive payment history by negotiating trade terms with your suppliers and paying on time.

Build business credit with lenders who report to the credit bureaus, such as banks and asset-based lenders.

YOUR PERSONAL CREDIT SCORE In the early phases of a business, a creditor may use the owner’s personal credit score to determine the business risk.