Tips & Strategies - July 2010

Credit Check Or Risk Bad Debt

1. Confirm Your Credit Account Applicant's Identity - Use the information supplied on your credit account application to credit check your prospective customer and confirm the details provided. This will eliminate application fraud and ensure you know who will be responsible for paying your invoices. If the applicant is a business it is also important to confirm the identity of the owner/s or director/s.
   
2. Find Out If Your Applicant is a Good or Bad Credit Risk - You are not a charity or an interest free bank so you need to identify problem debtors and those who refuse to pay their bills. See how they have been paying other suppliers before you accept their application for trade credit. You must protect your cashflow by choosing to deal with trustworthy customers who value your services and pay on time. A credit report will help you make an informed decision about whether to give credit and if so, how it should be managed. 
3. Credit Check Current Customers if they are not paying you on time, are only part paying an invoice or have asked for extended credit. They may have been good paying customers for months or years, but circumstances can change quickly especially in this current economic climate. A credit report could give you early warning of a customer's financial problems and prompt you to act quickly to protect your business. The credit reporting agencies say that 80% of bad debt comes from customers who have been paying you for at least 12 months. They also say an Australian company enters into external administration every 76 minutes! So it pays to monitor your customer's financial health on a regular basis, not just when they apply for credit.
4. Set Up a Credit Alert through one of Australia's credit reporting agencies (Veda Advantage or Dun & Bradstreet) so you can monitor any important changes to a customer's credit file. You can choose to register all your debtors or select the ones you want monitored and you decide on the information you want to be alerted to, such as a change in director, a change in ownership structure, court action or appointment of an administrator. There is no charge unless a change occurs. You are then emailed a report & charged the relevant fee. With an alert system in place you can be assured that you are immediately notified of changes that could present a credit risk to your business. Contact Ledger Guard for more information or assistance in setting up a credit alert system for your business.
5. Credit Check the Owners or Directors of a Business not just the business entity itself, so you have a comprehensive picture of your applicant's financial health. If the owner or director has personal debts this  will eventually impact their business. If there are failed businesses in the past you should also be concerned.