Boston Commercial Services Pty Ltd (ABN 87 114 658 070) CAPI Licence Number 409 456 759

You are here: Home / News / What Sort of Credit Checking Processes Should You Have in Place to Limit Financial Risk?

What Sort of Credit Checking Processes Should You Have in Place to Limit Financial Risk?

Businesses that offer goods or services on credit, face the risk that some clients may ultimately not pay up. This could result in significant financial losses and even financial ruin. Like all risks however it can be mitigated with appropriate policies and procedures so that negative impacts are minimised.

You can’t expect to get credit from a bank without undergoing rigorous financial and credit checks.

Likewise, a business can reduce the financial risk of extending credit by requiring all clients to apply for credit and by refusing to trade on credit with those clients who have doubtful means to pay their bills.

But how can a business determine which clients are of sufficient financial means and which should be avoided?

 

Credit Checking Processes

For your credit checking process to adequately mitigate your risk, it should include a number of key components:

 

Application form

It is important to start the process with all the key information at your fingertips. Although some specific investigations may differ from client to client, certain basic details should be collected from all applicants in an organised format.  The best way to do this is with a standardised credit application form. Maintaining accurate records of each client’s contact details including billing and registered addresses is also important if debts must be recovered down the track.

 

Read AlsoAt What Point Should You Escalate Overdue Accounts Receivable?

 

Policies for approving credit applications

Consultation between your various departments may be beneficial to develop policies for approving credit applications and setting appropriate credit limits.  Sales executives can provide insights on market realities and minimum credit limits required to facilitate business. While risk management and accounting disciplines are more familiar with what level of risk is acceptable for the business to take on.

 

Read Also: Your Credit Application Terms and Condition Should be Drafted by Legal Expert

 

The financial risk posed by a specific client may be assessed based on financial data contained in:

  • credit reports
  • credit references supplied by the client
  • letters of credit
  • financial statements and balance sheets, and
  • personal credit reports on the CEO (where relevant).

 

Such data will generally provide a good picture of how a company is performing.

Credit assessors should also be trained to recognise red flags which may include:

  • existing liens or charges on company assets
  • seasonal fluctuations in the client’s industry
  • existing commitments to trade credit relationships, or
  • unusual price cutting or discounting strategies which may hinder its ability to pay on time.

 

Regular reviews

As customers and industries change, so will risk profiles. As such, regular reviews of your credit checking processes and assessment criteria are recommended. Some businesses opt for a policy of regular ongoing financial disclosures from all approved clients to ensure they still meet approval criteria. Alternatively you may require such disclosures only upon the occurrence of certain events that trigger increased risk.

Utilising good credit checking procedures will go a long way to minimise bad debt, maximise income and optimise efficiency. If you’d like to implement better credit checking procedures and enhance your financial risk management talk to us about how we can help.

Get In Touch

Get an obligation free assessment now


Get in touch with us

Talk to our experts in Debt Recovery, Legal Services and Finance Solutions

  • I have known the principal of the BOSTON Group (Derryn HARRISON) as well as key staff members (including Ben GOWER) for well over 2 decades and have been using their professional services for myself as well as for Powerhouse Logistics Pty. Ltd. on a regular basis, not only in Sydney but on a national basis.

    At all times BOSTON have been extremely pro-active, attentive, courteous and professional with all matters we threw at them. Their advice has always been extremely sound and commercial and I find them to be a "breath of fresh air" within the legal fraternity and have no hesitation whatsoever to highly recommend them.

    Peter Brueckner

    Powerhouse Logistics Pty Ltd (CEO)

  • Expect A Star has worked with The Boston Group for 10 years. In this time we have appreciated the ongoing support of Boston for all of our collection and legal requirements. Like most businesses cashflow is critical to ongoing success and growth, with Boston we have found a partner who are an extension of our business and play a key part in our cashflow management. The Boston Group bring a level of expertise to our business which is valuable and coupled with their excellent customer service we look forward to continuing to work with them for many years to come.

    Ryan Meldrum

    Former CEO

  • I have been using the services of The Boston Group and their legal entity for over 11 years. During this time I have found their service to be impeccable, delivered with the utmost professionalism and integrity. The vast majority of cases that I have placed with Boston were far from straightforward, requiring legal acumen and delicate handling. Having used all methods available without success to procure payment, I confidently placed these matters into their safe hands. In all instances a successful outcome was achieved.

    Mark Parish

    Credit Manager

  • SNP Security has had the pleasure of working with Boston Commercial Services for the past 11 years. Boston has played an integral part in the continuing success of SNP Security’s low DSO’s, 90 Day % Debt & of course Bad Debts Written Off.

    Amanda Griffiths

    National Administration Manager

Boston Commercial Services is well known debt collection agency in Sydney, Melbourne and Brisbane who has long experience in debt collection.