There is an old saying that prevention is better than cure. This definitely applies when you are making the decision about whether to provide a credit facility to a new customer. If you take the time to find out more background information about your new customer you can prevent a lot of stress later. The last thing you need is for any customer to turn into a bad debtor. One of the easiest ways to get some background information on a new customer is by performing an ASIC search.
What is an ASIC search?
ASIC stands for the Australian Securities and Investments Commission. Its website (www.asic.gov.au) allows you to search for information on a company. Some basic information is free but you have to pay for more detailed information. They are used extensively by debt collectors in their day to day work.
When do you need to do an ASIC search?
It is generally recommended that when you are doing business with a small to medium sized company and providing them with a credit facility of $5,000 or more that an ASIC search be undertaken. The purpose of the ASIC search is to verify the information from the credit application form the new customer has completed against the ASIC search, as well as finding out additional information on the company.
What sort of information does the ASIC search provide?
1. Business Name
By conducting an ASIC search you will find out if the company actually exists.
2. Date of Incorporation
This information will give you some insight into the potential financial stability of the company. If the company has been in business for say 20 years then you will probably feel more comfortable in providing a credit facility than if it has been in business for only a few months. You also need to be alert to the fact that a newer company may be a replacement for another company that has gone into liquidation.
3. Directors and Shareholders
Detail is available on the directors and shareholders of a company which will give more clues about the company’s stability. Frequent changes to directors and shareholders can point to problems and instability within the company. Other useful information you can obtain includes the date of birth of the directors. If a director’s age is quite young then this could suggest insufficient time for the development of business and financial management skills. Also check to see if a director’s home address is the same as the company’s address as this indicates that a business is being run from home.
4. Charge over the assets of the company
A charge over assets, in general terms, is the right of a lender to be paid from a debtor’s assets if a debt has not been paid on time. This is important information to know as it will show if another business was sufficiently concerned to request a charge over the assets of your new customer.
Although you can perform an ASIC search yourself, it can be worthwhile to hire a professional debt collection company to do so. They can assist in interpreting the results from the ASIC search to make full use of the information in deciding whether to offer a credit facility to a new customer.