Given that most businesses fail due to cashflow problems, the New Year is a good time to review what you have been doing in respect of offering credit to your customers and implement new strategies where required. As a small business owner you need to ensure that your interests are protected when you deal other businesses and that you are paid for the services or products that you provide.
The following are 5 quick steps that will set you off in the right direction in gaining more confidence when providing customers with credit:
1. Credit policy
Do you have a written credit policy? If so, is it up to date and easy to understand? Is it given to customers when they have credit extended to them? Are your staff aware of the credit policy and refer to it when needed?
If you don’t have a written credit policy, consider having one drafted. It will prove invaluable if problems arise when collecting a debt from one of your customers.
2. Credit limits of each customer
Has a fixed limit of credit for each of your customers been established? Has the credit limit been established so that customers can buy your products but not cause any significant cash flow problems to your business if one of them defaults? Have the credit limits been communicated to both staff and customers? Has a check been done to ensure that the agreed credit limits are not being exceeded?
3. Credit application forms
Do you have credit applications forms? If not, you should consider having one drafted. Follow the link for more information on credit applications forms. Credit applications forms are critical in obtaining information about your customers. This information can then be used to do additional checking before you make the decision about whether to offer credit.
4. Trade references
Do you obtain trade references from customers requesting credit? If not, you really need to obtain them as it shows other businesses are willing to offer credit to the business. However, obtaining a written trade reference is not enough – you need to call the trade reference to make sure the reference is genuine. When this is done, a note of the phone call should be kept
5. ASIC Checks
Do you obtain ASIC reports to verify the information contained in your customers’ credit application forms? Unfortunately, experience has shown that a surprisingly high percentage of credit application forms do not contain correct information – whether by an oversight or a deliberate attempt to defraud a business. It is therefore imperative that, if you are not already doing so, that you obtain ASIC reports to verify the information contained in credit application forms.
As it can be difficult to interpret ASIC reports you should also consider engaging a debt collection agency like Brodie Collection Services to obtain an ASIC report on your behalf and provide an opinion on the risk profile of the customer. Reports should highlight the likely level of risk in providing credit – usually categorised as low, medium and high. Armed with this information you can make an informed decision about whether to offer credit.
Brodie Collection Services is one of Australia’s leading debt collection firms, with offices in Melbourne and Brisbane. They can provide ASIC search services from a low $46.50. They also provide debt collection services on a no collection, no charge basis. You can trust them with all your debt recovery needs. Visit www.brodiecollectionservices.com.au to find out more about the debt collector services that are offered by Brodie Collection Services or call us on 1300 276 343.
This information provides a general summary only and is not intended to provide specific advice for your individual circumstances. It is not a substitute for professional advice and should not be relied upon as such.