When it comes to finance, much of the focus and energy of businesses is focussed on obtaining credit. Businesses must also actively manage their credit to ensure they can meet their credit repayments and to identify any issues as they arise. This section provides information on:
Businesses should work with their bank to manage their credit. Some important steps that help businesses to maintain a good working relationship with their bank include:
- Keeping the bank up to date with the business’s performance, whether the business is doing well or not
- Presenting current and accurate financial information on a regular basis.
- Inviting the bank’s relationship manager to visit the business premises so that they can see how it operates
- Seeking advice and information from the bank, especially if the business has or could have cashflow or repayment problems or if the business is at risk of going over its agreed limit. If the business does go over its agreed limit, it may incur increased charges and it may also affect the business’s credit rating.
- Sticking to the terms of any lending agreement.
For a complete listing of credit institutions and retail credit firms regulated by the Central Bank of Ireland, please visit the Central Bank’s Register.
Banks must follow a code set out by the Central Bank in relation to lending called the Code of Conduct for Business Lending to Small and Medium Enterprises (SME Code). The Code addresses a range of issues related to bank lending including applying for credit, security or collateral requirements, credit declines/withdrawals, complaints and financial difficulties.
The Code was recently updated by the Central Bank with additional provisions regarding small businesses in financial difficulties and providing greater transparency around the credit process. This revised Code, now referred to as The SME Regulations, came into effect from 1 July 2016 for banks.
Banks must also follow the Central Bank’s Code of Conduct on the Switching of Current Accounts with Credit Institutions. This applies to both personal consumers and small businesses with turnover of up to €3 million.
Who provides credit?
Banks and non-banks provide a range of credit options for businesses.
For a complete listing of credit institutions and retail credit firms regulated by the Central Bank of Ireland, please visit the Central Bank’s website .
For a listing of credit intermediaries, including non-bank providers of asset finance authorised by the Competition and Consumer Protection Commission (CCPC), please visit the CCPC website here.
Managing Your Credit Rating
If the business does not make the full repayment on a bank credit facility by the scheduled due date, in line with the credit agreement, it is considered to be in arrears on that facility. If the facility remains in arrears for 90 days, it is deemed ‘in default’ and this could affect the business’s future credit rating.
The credit rating of a business will affect a bank’s willingness to lend, the interest rate and the conditions of the credit facility.