Written by Kady Potter
Posted on 22/01/2015

Credit Scoring problems as a result of mounting small debts

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A small purchase on a credit card here, an outstanding invoice for a few pounds or euros there. Suddenly, businesses may find that their small debts have snowballed into significant outstanding amounts.

Late is late is late

Smaller debts may be viewed as simply less pressing than larger invoices due, and could be continually shuffled to the back of the pile. However, failing to meet payment terms will always incur a penalty regardless of the amount, and payment history is one of the more important factors in determining a credit score. Effective cash flow management should involve evaluating each debt carefully and setting a firm deadline to have the balance paid both in good time and in full.

If the debt is left outstanding for too long, the company or individual owed may take legal measures to obtain the payment. A visit from a debt collection agency could leave a mark on your business credit score that’s difficult to remove.

The impact of a negative change in credit rating

Blemishes on your credit score can lead to insurers suddenly raising their premiums and finance providers abruptly refusing to lend. The rating also has an impact on other business concerns, such as the cost of broadband – vital to so many companies.

Owners of small or medium-sized businesses taking advantage of their personal credit to fund the business will find themselves with a more specific problem – the mark on their credit report will be entirely their own. Lenders are increasingly taking the credit history of a company owner into account when deciding whether to extend finance to the business.

Make sure your credit scoring remains intact

It may seem an obvious excuse, but one of the most frequent reasons cited for leaving even a small debt unpaid is that the debtor simply wasn’t aware of the outstanding balance. The amount outstanding may not be large enough at the outset for the person owed to bother actively chasing payment. Don’t leave invoicing and balancing the books until the end of the month – keep a regular eye on the funds moving in and out of the company bank account.

Debt on a credit card should always be addressed quickly, as your credit rating will be impacted from the very first missed payment. Every default or failure to pay that follows adds to the damage.