How good is your Credit Reputation?

The other day I saw a sticker in the window of a small business that stated: “ Maybe if a man pays cash, maybe his credit is no good!”

Or are you the type of person that when you go to see the Bank Manager for an overdraft extension, that on his suggestion you sit down on the chair, you rather sit down on your knees in the praying position?

Many years ago, a person would have a personal word-of-mouth reputation among friends, but now a credit report is the person’s financial reputation in print. The information in this report is considered reliable (if not always accurate – but that’s another issue) until disputed.

Creditors rarely care why a bill is not paid and so routinely will report to the credit bureaus their payment experience with a borrower/debtor. A very foreseeable result of not paying any credit account on time, is the appearance of negative information (late payment(s), charge off or collection) on the credit report.

In an age when credit reports are part of the application review process for business and personal loans, investments, employment or promotion, or various kinds of insurance, the information in a credit report can make a huge difference in the cost of service (interest rate, risk rating) or acceptance or denial of the application.

There is thus a huge potential for reputation risk in your individual capacity, should you default on paying an account or get in arrears. The negative reputation risk in this case can make or break the application. When I talk to audiences about Reputation Risk, I often sketch out the potential damages that can occur. In the case of an organization, a credit downgrading can impact the business severely. For an individual the loss of credit – such as increased cost of credit or the loss of a credit opportunity – may be devastating.

In business the issue of cash flow is paramount. It is the role of the Credit Control department to stay on top of things. They cannot afford to carry slow payers or late payers and you will quickly develop a negative reputation with them.

But as in good stakeholder communications, there are some things that you can do. Good and open communication is a vital tool in this regard. Talk to your creditors is a much better option that trying to avoid them. Go and see them. Explain your position. Show them that you are willing to pay, but just not able to at the moment.

In credit control departments they generally define 3 types of people:

– Those customers who generally tend to pay late and might need reminding

– Those customers who will eventually pay but are experiencing some financial problems and;

– Those customers who cannot pay at all

It does not matter which category you fall in, be careful and communicate soon if you do have a problem.

Here is something from another angle. I wonder how many companies who say they practice stakeholder management, ever bother to listen to small entrepreneurs who do business with the company. The way Creditors tend to treat the small business person(people like myself) is shocking. They lose invoices, delay the process through elaborate administrative processes (not all of them legally imposed) or stall. Many times it is because clerical staff do not understand the concept of the importance of cash flow.

So companies, this e-mail is also for you. What is your Reputation like in the eyes of the person who did work for you and now have to struggle to get paid? Just because they are small, be careful. Today activists have the means to do harm to your good name. If I have to put the times it has happened to me where I have worked with delegates – lovely dedicated people – only for their backroom staff to do harm, on my blog, there will be some red faces in corporate circles.