Tips & Strategies - June 2010

Credit Applications - What's Important & Why?

1. Ask for Trade References from regular suppliers who offer the same amount of credit as requested of you. Make sure you take the time to contact them and ask the right questions - Refer to our March Newsletter for specific questions you need to ask or contact Ledger Guard for assistance.
2. Correct Signatures - It is most important to have the application form signed by all authorised signatories who you may want to personally credit check. This means the individuals who own the business or are the directors (if the applicant is a company) need to sign the form. Credit reporting agency Veda Advantage has a timely warning: 
   "Since June 2008 we have seen a 33% increase in the number of director's credit files with derogatory information, including defaults, writs and judgements, court summons and bankruptcies".
   By signing the application, the authorised signatories should also be agreeing  to your terms and conditions printed on the back of the application form or on an attached page.
3. Personal Guarantee - If the applicant is a private company you should include a personal guarantee to be signed by the directors making them personally liable for their company's debt. If they don't want to stand behind their own company why should you be comfortable granting them trade credit.
4. Regular Reviews - It is important to keep your customer information current. Despite a good forecast for the Australian economy many businesses are still finding it tough, so we recommend you review credit files on a 6 monthly basis or immediately if the account is overdue. Update contact details and names of important contact people. Make sure there have been no changes to the legal structure or ownership of the business. With Dun & Bradstreet's Internet Alerts important accounts can be monitored so you receive an early warning of any adverse changes on their credit file such as court judgements and payment defaults.
5. Credit Checking Before You Supply - With the information on the application form and the appropriate signatures you can credit check the business and the individuals behind the business. Now is the time to find out if you are likely to get paid or if the applicant has a history of not paying suppliers. If a business has a number of court judgments or payment defaults listed on its credit file your risk is very high.  If the owner of a business was a former bankrupt or was a director of a previous company that went into liquidation you are also likely to have payment problems.
6. Credit Check Slow Payers - A court action is loaded every 3 minutes in Australia (Dun & Bradstreet Australia) and more than 26,000 individuals file for bankruptcy annually, so it pays to keep tabs on any customers who are not paying on time. For a small fee a credit report may alert you to serious payment issues so you can act quickly to ensure your business gets paid.