The characteristics of an individual company director or sole trader can have a direct impact on the credit control risk categorisation of their company – an inherent link between personal and business finances.
But what affects the individual’s approach to money, risk and credit? For the generation known as Millennials, who are reaching their 30s at the moment, the answer appears to lie firmly with the Bank of Mum and Dad.
Following nearly a decade of turbulent economic conditions, and the already challenging housing market that existed before the sub-prime lending crisis reared its head, many parents have been forced – whether willingly or reluctantly – to put their own money towards their offspring’s first home and other major costs like weddings and babies.
You might expect that this generosity has led to a younger generation with a good appreciation for the value of money and living within one’s means, but in some cases it appears that the opposite is true.
Research from credit reference agency Experian reveals that Millennials who say their parents had a negative effect on their view of money are more than twice as likely to miss a repayment on a credit product – 17% of this group have done so, compared to 7% of those whose parents made a positive financial impression.
One in three have entered an unplanned overdraft, and 44% have run out of money before payday; 5% have a County Court Judgment against them, one in ten have defaulted on a credit account, and one in five have been refused credit.
Clive Lawson, managing director of Experian, said: “It’s striking to see just how much of an impact parental influence can have on the financial wellbeing of Millennials in adulthood.
“What this research made clear to me was the opportunity that we as parents have to set foundations by helping our children learn from both our experiences and our mistakes in managing money, and enjoy the advantages that might bring them later in life.
“Many are still making crucial errors in the way they manage credit and these mistakes, such as not even checking their own credit report, can have far-reaching effects on their financial future.”
This is true not only in terms of their personal finances, but also in the banking and credit practices they bring to their professional roles – especially those who go into business for themselves, as an ever-increasing number of young people choose to do.
It creates the unusual scenario in which a company’s credit control risk categorisation may very well be influenced by how well mummy and daddy taught their budding entrepreneur to manage his or her borrowing.
And while this is unlikely to ever appear on a formal credit record, it perhaps goes some way to explain why certain individuals in certain companies simply seem to lack a sense of urgency about paying their invoices on time.
When you do spot this pattern of behaviour, it may be more than just laziness or ignorance – it may be the consequence of lifelong habits drilled into the individual since their childhood.