As a business owner, it\u2019s important to make sure that your business has the foundations to grow and be profitable. Not only this, it is also important to make sure that you have specific provisions in place to safeguard your operations to facilitate this grow and success.<\/p>\n
If your business operates on the basis of providing products or services and receives payment at a later date, you are effectively extending a line of credit \u2013 loaning money to your customers. This is essentially why you need to conduct your own due diligence and understand who you are dealing with and what their financial status and or capacity to pay their liabilities. Similar to financial institutions, they conduct a review of your financial status prior to approving a loan to understand your serviceability of that loan, so why should you be any different?<\/p>\n
A credit check on your customers (especially new customers) is an excellent way to provide a level of guarantee that your customers can actually afford to pay the invoices that you issue them. Credit checks provide key information about a particular business or an individual\u2019s financial history \u2013 good and bad, thanks to the introduction of the Comprehensive Credit Reporting (CCR) in Australia.<\/p>\n
Depending on your unique situation, there\u2019s many ways you can learn the credit history of new customers to protect your business against bad debt, however before we outline the most reliable ways to acquire this information, we explain what Comprehensive Credit Reporting (CCR) is, and what this now means for business owners such as yourself in safeguarding your business interests.<\/p>\n
What is Comprehensive Credit Reporting (CCR)?<\/strong><\/p>\n Essentially, Comprehensive Credit Reporting (CCR) or \u2018positive reporting\u2019 refers to additional information being provided to, and held by, Credit Reporting Bodies (CRBs) in Australia. These changes permit licensed credit providers access and use comprehensive information in order to make more educated lending decisions. This information now includes both positive and negative data on a person or business, rather previously credit providers only had access to negative credit events in which they assessed the viability for approval.<\/p>\n Initially launched in March 2014, the changes to the Privacy Act 1988 came into effect to allow additional information to be included in your credit history in your credit file. With the on boarding originally optional for financial providers, the government announced in late 2017 that is was now mandatory due to the slow adoption. Now, the requirement is that all licensed credit providers must have at least 50% of their positive consumer credit data \u2018ready for reporting\u2019 by the 1st<\/sup> July 2018, with all credit data available in 2019.<\/p>\n So what has Comprehensive Credit Reporting (CCR) changed?<\/strong><\/p>\n The new data incorporated in your credit file under Comprehensive Credit Reporting includes repayment history and consumer credit liability information.<\/p>\n Repayment history information includes:<\/p>\n Licensed credit providers in Australia can only record your repayment history, of which can only be stored for two (2) years. Please note that Utility and Telecommunication companies are not licensed credit providers, thus your repayment history wouldn\u2019t include these providers.<\/p>\n Consumer credit liability information includes:<\/p>\n So now you know what CCR is and its implications. Let\u2019s look at the most cost efficient and effective ways to learn your customer\u2019s credit history to reduce your chances of bad debt.<\/p>\n Credit Reports<\/strong><\/p>\n With the introduction of Comprehensive Credit Reporting (CCR) and the growing number of credit report providers, it\u2019s now easier than ever to acquire a credit report on prospective customers. These reports can provide vital information that can be the difference between business success and serious disputes – with the possibility of having to take legal action which involves additional costs.<\/p>\n Report contain information such as:<\/p>\n Summarily, the benefits that you get from these credit checks are:<\/p>\n A customer does not have to be a business, it could also be an individual. So depending on the situation, you are now more than ever able to understand who you are dealing with to make sure your implementing and agreeing to the most appropriate terms for the benefit of your business or personal circumstances.<\/p>\n Credit References<\/strong><\/p>\n Prior to negotiating trading terms with new customers, it might be beneficial to review and contact their credit references (if available) to get first-hand feedback from others who have conducted business with them in the past. Although obviously not as reliable as a credit report, it can provide you with another perspective to help define your trading agreement.<\/p>\n To make sure the relationship kicks off positively, it\u2019s always good to disclose and be transparent in regards to your process in conducting a thorough background check. A good customer wouldn\u2019t have any issues with this and would respect the process, but it\u2019s also a good strategy to assess their reaction to this to see if they have any reservations to conducting a background check.<\/p>\n Financial Statement<\/strong><\/p>\n If you\u2019re looking to conduct business with a new customer that is a large publicly listed company, you\u2019re able to acquire their financial statements quite easily as they are available to the public for free. Whilst financial statements will provide their financial status as an operating company, what these statements don\u2019t disclose is their payment history and how well they meet their financial obligations to smaller companies.<\/p>\n\n
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