SME funder warns of impact of credit report sharing

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SME funder warns of impact of credit report sharing

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Reporter 3 minute read

A national SME funder has warned that the Australian Taxation Office’s move to share data with credit reporting agencies from next month could negatively impact small businesses.

According to FactorONE, the specialist division of debtor finance company Scottish Pacific, from 1 July the ATO will disclose to credit reporting bureaus the tax debt information of businesses who have not effectively engaged with the ATO to manage their taxation debts. 


This will initially only apply to businesses with Australian Business Numbers and tax debt of more than $10,000 at least 90 days overdue. 

Speaking of the ATO’s plans to disclose tax debt information of businesses to credit reporting bureaus from the new financial year, FactorONE warned that SMEs with current or future tax debts or cash flow pressures could find it harder to access finance. 

FactorONE’s head of debtor finance, Wayne Smith, said the sharing of credit data aims to provide businesses with a more complete credit risk assessment and help credit managers identify businesses at high risk. 

But, he warned that while this increases the level of disclosure, SME owners should be “aware of the impact this move could have on their business”. 

“This move is likely to have an adverse impact on the credit appetite of the traditional sources of small business funding, and may also make it harder for SMEs to retain credit insurance limits,” Mr Smith said. 

“It is also likely to impact on trade credit, meaning where a business could gain trade credit previously, it may not be as readily offered or terms will not be extended, resulting in a potentially significant impact on cash flow.” 

To prepare for the changes and minimise their impact, the lender suggested that SMEs (and/or their brokers) should: 

- ensure their tax affairs are in order: Business owners should ensure that tax arrears are avoided or paid down, the funder said, as “ignoring these debts can impact on credit ratings and an SME’s future prospects of gaining business finance”;

- Communicate with financiers and suppliers – Due to the potentially “significant” impact of the changes, FactorONE suggests that business owners maintain strong relationships with their financiers and suppliers, and consider how they may “adapt” their businesses following any supplier credit tightening;

- Take a close look at credit insurance requirements – “Credit reporting agencies having access to additional data may lead credit insurance providers to reprice their products or decrease [customers’] limits,” the funder warned. It added that SMEs need to ensure they are not exposed to a higher level of trade risk; and

- Look for alternative funding sources – FactorONE suggested that SMEs diversify their funding sources in case their existing funding limits are reduced or withdrawn. 

Mr Smith added that embracing other forms of cash flow finance, such as invoice finance, could help provide the working capital necessary to prevent SMEs experiencing the cash flow issues that can result in tax arrears building up. 

“Invoice finance doesn’t require property to secure the deal, and for thousands of small businesses around Australia it provides a smart way of overcoming a negative credit reference,” he said. 

“It helps SMEs working towards a better credit profile so they can more easily secure business finance in the future.”

[Related: SMEs ‘leaving money on the table’ at tax time]

SME funder warns of impact of credit report sharing
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