Directing Growth

What SMEs need to know about new credit reporting rules

New rules for credit reporting were introduced earlier this year to provide more insight into people’s credit behaviour.

Comprehensive Credit Reporting broadens the type of credit information that can be accessed and how, and with whom, that data can be shared.

The changes affect SMEs as creditors and debtors, and require policies and procedures to ensure compliance with the new Australian Privacy Principles, says Amber Warren, a partner in the financial team at Gadens, Sydney.

What’s the most important requirement?
"A privacy policy. Generally you’d have that on your website, although you can have it in document form and provide it on request to customers."

The privacy policy should outline how your business will collect, hold, use and disclose personal information. It also needs to spell out whether personal information will be disclosed to an overseas entity or other third party. It should indicate how an individual can access and correct personal information, and how they can make a complaint if they think their privacy has been breached.

If you have five or more employees, you also need an internal compliance plan that deals with internal processes and procedures to ensure compliance with the privacy policy.

Putting that framework in place has long-term benefits for a business because when employees are trained to comply with the law, it reduces the risk of breaches.

Under the new regime the privacy commissioner intends to be much more active in pursuing breaches of the law, and there are significant fines for breach of privacy.

How do the new rules affect a business that’s owed money?
If your client or customer has defaulted on a payment, and you want to provide information about them to a credit reporting body, you must first let them know in writing that you intend to disclose the default. Then you’ll need to wait 14 days before listing it with the credit reporting body.

What are the benefits of the new rules?
Some business owners use equity in their homes to fund their businesses. If they have met all their repayments for a few years, that will count favourably in an application for other credit. That goes for any consumer credit. The amount of credit provided and the terms of the loan will all now be included on the individual’s file.

Another benefit to businesses is that it’s now easier to verify a client or customer’s liabilities. When you request a credit report, you’ll see a record of honouring financial obligations, with reports on late payment or no payments, allowing you to flush out customers in default or with a bad track record.

This article was originally published in the Australian Institute of Company Director's Business Owners Resource Centre.

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Published on: Monday, September 29, 2014