Tips & Strategies - May 2011 

High Risk Customers - Identify, then Manage or Avoid

1. Poor Payment History & Legal Action - A business that hasn't been paying its bills on time or has been taken to court in the past is a significant risk. The quickest and most reliable way to find out if your credit applicant has something serious to hide is to credit check them. It is an easy quick process and for only a small fee could save you thousands of dollars in unpaid work or goods supplied. Contact Ledger Guard for information and assistance. 
2. A Previous Failed Business  - Statistics indicate business owners or company directors who have been involved in a failed business are 5 times more likely to fail again. A credit report will include a director's current and past directorships. If there are companies listed as liquidated or under administration be warned. You can also check the ASIC Register of Banned & Disqualified Persons List to make sure your customer is not mentioned.  
3. Age of the Business & Inexperienced Operators - A young business potentially poses a higher risk especially if the owner is young and inexperienced. Take precautions such as payment upfront or a low credit limit until they build up sufficient trust. Secure a personal guarantee if you are dealing with a company or trust entity. 
4. Multiple Registered Charges to cover overdrafts, finance loans  and/or bank loans -  Substantial interest charges for overdrafts and loans could put a business under too much financial stress. Take note of the registered charges listed on a customer's credit file when you are assessing their credit risk. 
5. Credit Applicant's Information Can't Be Confirmed - It's vital to gather as much information as you can about your customer at the start of the relationship when you have goodwill and communication. Use a credit application or a customer information form that asks all the relevant questions. Make sure you check that the information supplied is correct. If the information is wrong it could be a careless mistake or the applicant could be deliberately deceiving you.
6. Frequent Management Changes - Too many changes could indicate instability and inconsistent management policies. ASIC offer a free service called Company Alert that sends you an email every time a company you've listed registers a document with them. This way you can keep abreast of any important changes to customers' company details.
7. Gut Feeling - You may have an uneasy feeling about a new customer. Maybe what he says doesn't ring true or he isn't easy to deal with right from first introductions.  Back up your gut feeling with a credit report  that will help you determine your credit risk. Payment upfront or walking away may be the wisest move.