Four ways to better manage new customers

CreditorWatch’s data shows there was a slight decrease in payment times (7.6 per cent from June to July) and an uptick in credit enquiries being made (5.1 per cent from June to July) suggesting that SMEs are starting to get on top of their finances.

The reality is that payment times remain high (up 224 per cent year-on-year in July) – a key indication that businesses are struggling with cashflow – and the number of companies entering into administration sits at the lowest number since 2016. Whilst apparently positive, this tells us that a significant number of businesses across the country are artificially supported by Government stimulus.

Australian businesses now face the tricky task of navigating the current economic climate and growing their customer base in a time of significant uncertainty. As businesses begin to look forward, it begs the question – how do you know that a new customer can pay their bills and isn’t on the verge of collapse?

Know what constitutes high-risk

Unfortunately, there’s only so much you can understand about a business from what they tell you upfront, but there are warning signs that will paint an accurate picture of financial health:

  • The debtor is slow to pay their bills.
  • Payment defaults are registered (by both smaller non-critical suppliers and larger suppliers).
  • Debt collection action.
  • Court actions lodged.
  • Insolvency notices issued.

Being notified of the warning signs will enable you to identify those risky customers and avoid extending lines of credit or goods/services that may never be settled.

Explore the credit history of your customers

When you apply for personal credit, you’re required to submit to a credit history check and it’s now possible to demand the same from your commercial customers.

The process of running a credit check takes mere minutes, and the outcome is an overview of the financial health and history of the company. Details like their ability to meet payment terms or historic issues with non-payment are immediately obvious and can guide your decision about whether or not to partner with them.

Understanding the details of a new customer’s credit history should be considered a mandatory part of customer onboarding.

Understand the business credit score

A credit score is essentially a one-stop-shop for knowing who to trade or partner with.

Beyond the information you can find, researching online, a company credit score aggregates data from sources like the Australian Securities and Investments Commission (ASIC), the Australian Business Register (ABR), Australian Financial Security Authority (AFSA), Australian Courts, mercantile agents (debt collectors) before classifying businesses into one of six categories of risk – from low to critical.

Get alerted to any changes in behaviour

Business and credit reports are continually changing. It’s never been more important to stay on top of alerts and suspicious activity, as ultimately, it can be the difference between a paid or unpaid invoice or the success of your business.

Ongoing business credit monitoring – through proactive alerts – is the best way to manage a debtor. You’ll be able to identify the customers and businesses on the brink of collapse and take steps to prioritise debt collection or limit the credit line on offer.

Lowering risk and increasing peace of mind

High payment times and a historic drop in the level of businesses entering into administration highlights the fact that behind the scenes, businesses are struggling. Australian businesses simply can’t afford any additional risk. What they need is to be able to get back to running their business, knowing that their customers have the means to pay their bills.

Taking steps to understand the financial health and history of new customers and partners could go a long way in protecting the bottom line of your business.

Matthew Jackson, General Manager, CreditorWatch

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