Many businesses are shocked when they receive a letter from a liquidator advising that one of their customers has become insolvent and they won’t be paid.
The trade receivables of a business can often be their largest asset. It is also the greatest means of generating cashflow and the source of their ability to pay their suppliers.
Therefore, why are some ‘simple steps’ not taken to ensure businesses can avoid bad debts into the future?
These steps can be easily implemented either in-house or using an external party, and will protect businesses against the risk of future bad debts. These include:
- New credit assessment – when establishing a new credit account, ensuring you have effective in-depth procedures to onboard a new customer.
- Terms and Conditions of sale – making sure you have the right terms and conditions of sale that are up-to-date and allow you to recover your goods or outstanding monies when they become due.
- Overdue collections – when an account becomes overdue, make sure you have a robust process to initiate collection recoveries.
- Security – make sure you register your security interests over your goods under the Personal Property Securities Act
- Trade Credit Insurance – for a very small percentage (typically between 0.1% and 0.6% – of your credit sales) you can insure up to 90% of your debt if a customer becomes insolvent.
These simple steps will reduce the likelihood of your business having a bad debt or, in the event your customer becomes overdue, ensure you are best placed to take action or claim a payment through your credit insurance policy. For more information on NCI Credit Risk Management services and how to assess new and existing customer credit levels, click here.