Small businesses are often the first ones to be hardest hit during difficult times. However, there are ways business owners can take control – starting with building a strong credit reputation, explains Keith Wardell, head of commercial strategy at Experian South Africa. Wardell presented at the Experian Financial Wellness Zone at the National Small Business Chamber’s ‘My Business Expo’ in Cape Town

Small businesses are under enormous strain in the current environment of ongoing minimum wage talks and lacklustre consumer spending.

The tension is evident in Experian South Africa’s latest Business Debt Index (BDI) for the second quarter of 2016. According to the latest data, the outstanding debtors’ days shot up to 63.65 in Q2, from 57.96 in Q1. Compared to their large business counterparts, small businesses face a troubled road ahead.

However, more worrying are the far-reaching implications to the South African economy. Small businesses tend to employ the highest number of workers in any economy and if the current macro-environment trends continue, the country’s employment sector may continue to reflect declining numbers.

While many macro variables, such as policy-decision making and the easing of red tape – the main challenges for small businesses in South Africa for a number of years – are key to improving the environment for small businesses, it is also up to entrepreneurs to take ownership and stewardship of their business’ financial position.

The root of such behaviour lies in ensuring – and sustaining – healthy businesses and proactive management for success.


Building a solid foundation 

According to Global Entrepreneurship Monitor’s South African Report 2015/16, challenges for accessing finance were significantly higher for entrepreneurs in 2015 compared to 2014 and has resulted in more than a quarter of entrepreneurs exiting their businesses for this reason. The report also showed that almost a third of South African entrepreneurs discontinued their businesses due to lack of access to finance, compared to the average for Africa.

Supporting these findings is the National Small Business Chamber’s ‘2015 National Small Business’ survey which found that 57% of respondents identified lack of funding and insufficient cash flow as the biggest obstacles to their growth.

While there may be very valid reasons for this, including the age-old challenges of poor payments cycles and high spending – where ‘it takes money to make money’ – are often the cause of difficulties in maintaining a healthy cash flow, keeping afloat and accessing the capital required to expand.

In these cases, maintaining a good credit reputation is often overlooked. Understanding what this involves and how it can impact a business is essential for any entrepreneur needing to prove their integrity and trustworthiness to financial institutions, suppliers and customers.

A credit rating provides indication that the business is sound, has a clear vision and is committed to being an active, responsible participant in the marketplace.  Having a good credit reputation instils confidence in the business and its planning. It also gives small businesses the financial freedom to transition to the next phase of growth.

Credit reputation begins with a credit report that features, amongst others, a credit rating. This would include a risk score and risk summary, along with public record information to determine if any court judgments and bonds exist for the business.

The report also includes ledger information featuring a payment summary on the business for the last 12 months, including outstanding and overdue account information.

A credit reputation can be measured as positive or negative. It is important that business owners are aware of how this is influenced.


  • Multiple applications for credit in a short space of time – a reflection of a businesses’ financial instability and ability to repay debt.
  • Judgments – an indicator of irresponsible borrowing and poor management of finances.
  • Late payment of invoices/credits – shows poor internal management and inability to make on-time debt repayments.


  • Prompt payment to suppliers – shows willingness, readiness and ability to service debt.
  • Sharing as much information as possible with credit bureau – shows that there are no hidden agendas and that the business operates in a credible way.
  • Ensure information on credit bureau is accurate – shows that the business is proactive at managing all aspects of its operations, including its credit reputation.  Credit ratings are an important background check that helps small businesses owners to ensure customers – particularly those who are they about to embark on business with – are able to make timely and regular payments.  This ultimately helps to safeguard small businesses against risks, such as bad debt, that could threaten the business’s financial stability. Properly utilising business credit reports can give small business owners the edge and agility to respond and react to issues well in advance, and plan for worst case scenarios. The old adage of “prevention is better than a cure” always rings true for good credit health. This often involves taking pre-emptive measures such as budgeting for credit, understanding the exact payback amount and keeping debt repayments between 20% and 30% of monthly expenses.
  • Understanding your own personal as well as your business credit report serves to ensure a proactive management of one’s business wellness – and is a welcome tool in an entrepreneur’s toolkit.


Taking control

Experian’s Business Check, for example, enables access to online business credit checks, as an example of a risk mitigation tool that gives small business owners the peace of mind to ensure sound business practice by customers.

Additionally, as a small business owner, it is equally important to know your customers’ business health.

As one would manage personal debt – such as paying accounts on time, giving letters of demand due attention and arranging alternative arrangements during difficult months – it is important that businesses follow the same to protect their credit reputation and take control of their financial health.