Credit report: tips for SMEs

Credit report: tips for SMEs

They are called KSV, CRIF, AKV, Dun & Bradstreet or Creditreform – and they constantly collect data about Austrian companies. To assess creditworthiness, the credit reporting agencies use, among other things, the company's annual reports, their payment behavior, forecasts and the customer, supplier and owner structures. “Not only banks and suppliers have great interest in credit ratings, but also credit insurers,” explains Peter Androsch, managing partner of Austria’s leading credit insurance brokerage company A.C.I.C. The largest credit insurers in this country are Acredia, Atradius, Coface and R+V. But international credit insurance companies from foreign suppliers also access this information. In practice, insurers constantly collect additional information because they themselves have to step in if the insured delivery claims fail. You want to be on the safe side.

In practice, Peter Androsch often explains to companies how they can respond correctly to credit insurers' questions. But he also has basic behavioral tips for SMEs on how they should react: 

1: Don’t refuse to provide information

“Any non-communication could be interpreted as a negative risk characteristic,” warns Androsch. It is also not recommended to pass on the "bare numbers" without comment - especially if a company has had an unusually bad year: for example, if the equity ratio has fallen sharply, if there is an increased need for financing or even if positive one-off effects as part of the government aid programs have improved the result and are no longer to be expected in the future. “Always provide a plausible explanation if there are major deviations,” advises Androsch.

2: Do not jeopardize your creditworthiness with suppliers

Demand is booming again in some industries, but the disruption to supply chains continues to put a damper on the upswing because of a lack of raw materials or components. Many buyers are not even aware that negative credit ratings can also have a negative impact on the flow of goods. Especially for smaller companies without market power, large suppliers could, as a precaution, only deliver against advance payment - which has a noticeably negative impact on liquidity. “Every company that buys its goods on Ziel should therefore be aware of its role as a supplier’s credit holder and constantly maintain and maintain its creditworthiness,” said the expert.

3: Don't exhaust your scope

In the wake of the corona pandemic, lawmakers have extended the deadline for submitting annual financial statements. However, that is no reason to wait until the last minute to publish the balance sheet. Quite the opposite: Proactive financial communication with credit reporting agencies and credit insurers is extremely important, especially in volatile times. “If the situation has already changed noticeably compared to 2020, I even recommend preparing a preliminary interim report for the course of 2021 so far,” explains Androsch. Submitting budget forecasts regularly can also be very helpful. However, these should not only be well-founded and plausible, but ideally also adhered to. Because after the rating is always before the rating.

4: Show willingness to compromise on sensitive issues

Apple is a good example of how large companies are often reluctant to reveal information about their suppliers. This question is often correspondingly sensitive for SMEs if they are asked about it during discussions with the credit reporting agencies. Ultimately, this data could unintentionally fall into the hands of competitors. Many people are understandably silent about details about their most important customers. "Since these questions are primarily about clarifying the cluster risks caused by the dependence on a few business partners, you can of course also answer this question in more veiled terms. For example, you could explain that no individual customer is responsible for more than ten percent of annual sales," recommends the expert.

5: Don't get angry - rather go on the offensive

If you have refused to provide information to credit bureaus in the past, it could be that your credit rating is based on assessments that are too negative. In order to find out about your own status, it is advisable to obtain a self-disclosure from the credit reporting agencies. The relevant forms can usually be found on their websites. Of course, suppliers can also obtain information about the creditworthiness of their own customers from the credit agencies. However, such information is subject to a charge and also carries a significant residual risk. If a customer becomes insolvent despite a good credit rating, the suppliers continue to bear the risk themselves.

Ideally, suppliers should insure their receivables with credit insurance, because not only is the customer's creditworthiness constantly monitored, but the insurance companies are also responsible for the insured delivery receivables in the event of a misjudgment. "Credit insurance is available for every size of company. In any case, large suppliers make diligent use of this option: domestic credit insurers have guaranteed cover for around 56 billion euros - including almost 40 billion euros for export business. However, the instrument has not yet reached enough of Austrian medium-sized businesses," emphasizes Androsch.