Under current laws, a small business supplier can list a credit default on your commercial credit file with relative ease.
The conditions are usually set out in the credit reporting entity's (i.e. Equifax's) terms and conditions.
The Privacy Act does not apply.
For instance, if you have an account with a trade supplier and you have not paid a prior invoice concerning $100 or more which is now overdue, all that supplier needs to do is to attempt to collect the debt and send a follow up letter referring to the default and the intention to list the default on your credit file.
Should the default persist, the supplier can then lodge the payment default with Equifax/other credit reporting agency. That default will then be publically available for any other credit provider or potential credit provider.
Further, if you have personally guaranteed a commercial debt, the supplier can list a default against you personally as well – should similar attempts to collect and notice/s of intention to list be set out to the guarantor as well.
Once that default has been listed, it is extremely difficult to remove. Unless there is a genuine dispute and the credit provider knew about that dispute prior to lodgment, the default is likely to remain on the credit file for up to 5 years. Even if the debt is paid or settled, the default listing will not be removed from the record (rather it will just be updated to say paid and/or settled).
The impact of this can be severe:
- Other creditors may be notified of or discover the credit default;
- This may result in the termination of, or other adverse circumstances arising in respect thereof, their contracts with you;
- Potential creditors:
- May not provide credit to you; or
- May only provide credit to you if they accept (at their sole discretion) a detailed explanation on legal letterhead as to the background circumstances, what the genuine dispute actually is and are satisfied (usually following a fine-tooth comb analysis) with your financial circumstances in respect to serviceability;
- Further, other/more onerous conditions may be put in place such as higher interest, additional security and other protective mechanisms;
Accordingly, this relatively cheap and easy tool can be potent in any debt collection process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.