How simple due diligence can identify slow payers or bad customers before it’s too late
The type of customer you deal with can have a serious impact on the longevity of your business, so if you’re looking to take on new customers or engage in a business partnership that involves offering some form of credit, it is always important to make sure you conduct a background check on who you’re dealing with to safeguard your own business interests.
It’s obviously very difficult to know in advance whether a customer is going to be a detriment or not, however it is for this reason we have outlined a few key areas to help you be better equipped to make sure you’re making an educated decision. These include;
- Credit worthiness of potential customers
Businesses can now make decisions about potential customers through Comprehensive Credit Reporting (CRR), which allows them to have a complete picture of the client’s profile. Having access to a customer’s credit history is a good way to provide a guarantee that they have a reputable background and will make good on their promises to not only pay you, but on time also.
- Financial Standing
In most cases if it is a publicly listed company, gaining access to their financial statements is quite easy, as this is visible to the general public. Even though financial statements doesn’t highlight their payment history, it is a good way of understanding the nature of the business and their financial strength to pay their financial obligations.
- Insurance against Credit
It’s always a good idea to get insured for outstanding payments that customers owe your company – often referred to as credit insurance. No matter how much one thinks they know or trust their clients, it’s always better to have a backup plan in place to safeguard the long term interests of you company. This will protect your company from any contingencies should the need for it arise.
- Set terms of payment
Establishing and enforcing clear payment terms at the beginning of the relationship sets the tone and expectations of the business partnership,. This should ideally be adhered to throughout the entirety of the contract, however there could be provisions that you may need to set in place to mitigate any potential issues. An example of this could include asking customers to pay a percentage or some other upfront amount as a deposit. Not only does this help your cash flow, but also provides a degree of certainty that the customer will pay the remaining amount when it falls due.
- Behaviour of the customers
It is important to look out for both verbal and nonverbal cues with customers when you’re dealing with them on a day-to-day basis. Paying attention to someone’s behaviour can help identify any potential issues or uncertainty in their ability to pay their account, which could allow you the chance to react and resolve the problems before it gets out of control and cannot be rectified.
- Reference Check
Performing a thorough research by asking around in the industry is also a great way to mitigating any potential customers who have a history of bad debt.. Word of mouth is still a strong form of communication in business, especially within specific industries or locations. If there are any complaints against a company, people within the industry would know so it wouldn’t take too long to understand their ability to pay or more broadly are a customer you would want to do business with. As outlined earlier in this article, accessing credit reports is a great and easy way to assess the viability of any potential customer. Even though the quality of the reference is probably the most important, you cannot underestimate the more sources you have at your disposal the better, as to have a clear picture of who they are and knowledge of what to expect with them is paramount if you want to do business with them.
Taking precautionary measures and staying in constant contact with your customers is essential to making sure that not only will the customer make timely payments, but also help you to understand the kind of clients that you’re going into business with. This understanding helps to resolve any potential issues should they arise. Conducting such due diligence will help your company to be more prepared and also show the customer that they’re serious about their business and the conditions set out for the relationship.
About Marshall Freeman
Marshall Freeman is Australia’s leading debt collection specialists. We have been servicing over 20,000 businesses throughout Australia for over 15 years, which has set the foundation of deploying industry leading knowledge and collection techniques that simply delivers results that are unrivaled. Whether you need assistance with slow payers or collection of bad debt, we offer a transparent and stress free collection process that makes your debt a priority to get you paid faster.
If you’re looking to partner with a result driven debt recovery agency, please feel free to call us on 1300 136 271 or get an obligation FREE debt appraisal by filling in the form on this page.