Australian businesses are currently being observed to be frequently expanding their credit terms from 60 to 90 days. The natural assumption is that this will foster better relations with their client base – but the big question is: is it worth maintaining customers who seemingly are unable to pay you?
This question is one that appears to be barely discussed in open forums – almost as if it were a taboo topic and not one to be addressed. Having bad debts frequently come with the accompanying symptoms of decline in cash flow, over drafting, cutbacks on staff and limited chances of internal- and external development. Hence every company should have a procedure at hand to protect itself from this often incurable scenario since indeed the business wellbeing is endangered by the increase of extensive outstanding debts to be claimed continuously.
To prevent this potentially fatal situation: the solution is to develop a strategy on credit control, to secure the risk of going into business with clients who might be unable to finalise financial commitment.
Credit control could be taken as a formal weeding process that comprises of a Credit Application Form and Terms and Conditions presented to all possible clients before going into business. Potential first customers with in-depth know-how will appreciate your sound business sense and be ready to fill out the form with its few simple questions, which will save you from a possible headache in the future if establishing a new business relationship. At the same time challenging customers will turn their backs on this procedure and look for an alternative provider to avoid filling in such form.
The standard Credit Application requires the following information:
- Proprietor’s details (such as sole trader, partnership, corporation)
- Trading name
- ABN (Australian Business Number)
- Trade references
- Amount of credit required
- Personal guarantees (corporations)
The Terms and Conditions section should contain:
- Jurisdiction – to eradicate interstate matters, with his signature the potential customer agrees to the laws of the company’s home state.
- Payment terms – for example, seven, 14, 30 days.
When the Credit Application has been filled out, and the Terms and Conditions agreed to, it is now possible to investigate the credit quality of the potential customer. This evaluation process does not have to be time – nor money consuming if applied to a methodical checklist:
- Control if the potential client has filled in the complete form and agreed to the Terms and Conditions by signature.
- Undertake a search to verify the business name is registered to the holder’s name as listed in the Credit Application.
- Verify trade references with other companies working in your potential client’s industry, considering suppliers already late with their payments might not have been specified in the given form.
- Investigate in financial data if asked for a large credit. In the event of companies calling for credit, personal guarantees of directors should be standard such in case of omission, and he can individually be rendered liable at the same time as the company.
- Review other printers trade history to assess if such business is viable in that region.
- Implement a search through a Credit Report Agency. The results will certainly be dependent on the number of credit already requested.
- Always procure security if the debt is large. This can be reached through various methods, one of them could be consulting a Trade Debtor Insurance.
Our next blog in this series will discuss controlling the credit.
If you would like to learn more about the debt collection services we offer, feel free to contact us now. We have 30 plus years of experience in providing professional and discreet debt collection solutions for clients of all sizes and across all industries. With debt collection agencies in Sydney, Melbourne and Brisbane we have the east coast covered.