Many business owners make the mistake of shrugging off a credit default, mainly because they don’t fully understand how such a record can affect their company’s financial future. If you are a debtor, you should not take credit defaults lightly as they come with grave consequences. If you are a creditor, you should also not take credit defaults lightly as they can help you improve your debt collection efforts.
What is a Commercial Credit Default?
A commercial credit default is a debt of $100 or more that has remained unpaid for over 60 days.
Debt collection agencies can place credit defaults on businesses that do not pay their debts after the allotted 60-day period if the accounts in question are not disputed. Debt collection agencies typically place these credit defaults with credit reporting companies, such as Equifax.
The Australian Tax Office (ATO) also registers credit default against businesses who have $10,000 or more tax debt unpaid for longer than 90 days. Read more about the ATO credit defaults here.
How Will a Commercial Credit Default Affect My Business?
A commercial credit default will affect your business in several ways, among them the following:
Credit Default Remains in Credit History for 5 Years
Once the credit reporting company notes your commercial credit defaults, it will remain in your credit history for five years. You can’t have these commercial credit defaults removed or stricken off, even if you eventually pay the debt off in full. When you have paid the debt in full, the credit reporting company will only update your credit history to “Paid.”
How can you clear a default in your credit history?
You generally can’t clear a default in your credit history. But the Privacy Act gives you the right to have any wrong or erroneous information in your credit report corrected. All you have to do is lodge a complaint with the credit reporting company.
Credit Default Can Impair Your Ability to Get Loans or Financing
Having a credit default can negatively affect your company’s ability to acquire loans or other forms of financing in the future. The Privacy Act does not apply to credit reports, which means that the information is available to the public. Potential lenders may see the credit default on your record as a sign that you are not a creditworthy borrower. Thus, hindering business growth and expansion.
Credit Default Can Damage Your Relationship With Suppliers
Having a default on your record can also damage your relationship with your suppliers and distributors. They may be wary of doing business with a company that has a bad credit history and opt to charge you more or deny you entirely.
Credit Default Can Make You Personally Liable for Debt
If you personally guaranteed a commercial loan, the creditor can list a credit default against you personally as well if there have been attempts to collect on the debt to the guarantor.
How Will I Know If I Have a Default?
You will receive a notification from your creditor saying you have an unpaid debt and they will be filing a credit default in your credit history.
Creditors usually send at least two written notices of request for debt payment to the debtor’s last known address and/or email address. Companies like Slater Byrne Recoveries have software that can determine whether an email has been viewed by the other side. Creditors send out the first letter immediately after the invoice’s due date.
The creditor then sends the second notice at least 30 days after the initial letter. The second letter usually includes a statement informing the debtor that the creditor or the debt collection agent will report the default to a credit reporting body if the debtor continues to refuse to pay. In a typical debt collection process, the creditor follows up the second notice with a letter of demand.
What Can I Do to Prevent Credit Defaults?
The best way to prevent all of this is to make sure you pay all your invoices on time. Also, maintain communication with your creditors. If you’re struggling to make repayments, inform your creditors immediately. This way, you can work together to come up with a payment plan that will work for your company’s current financial situation.
Can I Use Credit Defaults to Improve Debt Collection?
Credit defaults are not all bad because they can help creditors recover debts more efficiently. Many debtors continue to refuse to pay despite receiving several notices for payment. Creditors also need recourse over commercial credit defaults; otherwise, they will be left with negative cash flow.
As a debt collection agency in Australia, Slater Byrne Recoveries use a simple but effective commercial debt recovery process that no other firm can match, partly due to our license with Equifax, a credit reporting company.
If you wish to discuss credit defaults and how Slater Byrne Recoveries can help you with your debt collection case, call us on 1300 794 290 or send us an email at [email protected] for an obligation-free chat.
Liam White joined the Slater Byrne Recoveries team in early 2013. He has worked across the credit & dispute resolution industry for a number of years. He is currently working in a Marketing/Head of Sales capacity at Slater Byrne Recoveries.