Increasingly lenders are using individual and business credit scores to determine not only who they will lend to but also what terms and pricing might apply. So, it is now critical that all potential borrowers are aware of this and how important it is to maintain a good credit score.

This represents a change from how lenders have traditionally used credit reporting, where typically it was just used by a credit person (in conjunction with other information provided) to make a credit decision. This approach was largely a reflection of credit agency reporting being less sophisticated than it now is regarding the availability of information.

Historically most credit checks (business and personal) were clean and only material credit events were reported, where a creditor had gone to the effort of lodging a default or where a default had progressed to being dealt with by a collection agency or resulted in a court judgement or bankruptcy.  Lenders would normally steer clear of companies or individuals with serious or multiple adverse credit reporting, but minor defaults could usually be explained and mitigated.

The major shift that has occurred is that the historical negative only reporting model has been superseded by the current model that considers both negative and positive information, which contributes to credit scoring. All credit scores reflect the activity on the associated credit file, which covers activity relating to:

• Age of an individual

• Geographic location

• Age of the credit file

• Changes in address

• Frequency of applications for credit or finance

• Who you have applied for credit or finance from

• How well (or not) you repaid any credit or finance

Although many of our clients have had good YE 2022 financial results, they are perhaps more apprehensive about what this current financial year will bring. For business owners and managers, it is a great time to proactively assess how the business is performing and whether there are opportunities to make savings without compromising your value proposition or service offering to customers. Anything that you can do to optimise cash flow is critical to ensuring that you're best positioned for continued success.

How you’re financing your business and the assets that you use in it can have a marked effect on cash flow and funding decisions should not be solely focussed on interest rate because cheap rates, which are now harder to come by, do not always equate to the best outcome for your business.

So, although the COST of interest rates is still a factor in considering what finance option may be best for your business, it is equally important to consider another couple of key factors – STRUCTURE and RISK. Any review of your finance structures is best done proactively before cash flow pressures become evident or reach a crisis point.

The STRUCTURE of your finance can be the most important factor, and which also may have the biggest impact on cash flow. Think about the following points and questions when assessing how your finance fits and helps you achieve your business objectives:

• Cash or Trade Cycle: Is the funding term matched and appropriate for this?

• Useful life of Asset(s): Are asset loans structured in line with the productive useful life of your assets?

• For older/used Assets: Are there any restrictions imposed by the funder?

• Current Cash flow problems: Are current debt repayment structures contributing to this and could a restructure of your debt provide cash flow relief? Often businesses are repaying debt too quickly.

• Asset Rich but cash poor: Is there an opportunity to use the equity in your business assets to provide liquidity, bolster cashflow and improve performance, while funding these assets over appropriate terms?

• Terms of Agreement, Conditions and Covenants: Are these restrictive from your current funder?  Does your funder hold more security than they need?