While offering credit accounts to clients can boost sales and customer base, risks are unavoidable in terms of accounts receivable. To mitigate the risks when offering credit accounts to clients, we suggest following points to be considered:
Credit Record
First and foremost, check their credit history. This is the most straightforward way to work out whether a credit account should be offered or not. With tens of dollars costs, it can potentially save tens of thousands of dollars bad debts. Remember not only to check their default record, but also have a look at the records of who checked your customer’s credit record (it will be showing on the report), this can help you to draw a full picture of their credit activities. For example, if a bank assesses a loan application and discovers that the applicant’s credit record has also been checked by other banks at the same time, then the bank will query whether or not the applicant is applying for multiple loans in order to borrow more than they can afford.
ABN/ACN
Secondly, check the ABN/ACN of your customer. Does it match what was stated by the customer? How long has the ABN/ACN been registered? Did the customer register GST? Generally speaking, the risks are high if you offer credit account to a business with less than one year’s ABN. And if a customer didn’t register GST but looking for a $20k credit account with 30 days term, probably you should start to offer them a smaller account since their annual turnover is assumed to be less than $75k, and a $20k/30 days credit account maybe out of their repaying power.
The Client’s Purchasing Power
After the above risks factors have been considered, now it’s time to think about their purchasing power, how much sales are forecasted? A good credit manager should not only consider the risks, but also take sales into account. After both risks and benefits have been considered, then we can decide how much credit and trading term to be offered to the customer. Remember a set credit limit and term are important for good accounts receivable environment, if you are unsure about how much and how long to offer, start with a small credit account that your customer is definitely able to pay, then gradually increase it if the client pays good with time goes on.
While the actual situation maybe far more complex than the above, this is a simple guide that hopefully could help business owners to make better decisions regarding commercial credit accounts. Consult with professionals if you are unsure about what to do.
Besides professional debt collections service, Xservices also provide accounts receivable and credit management services. No matter you are a small to medium size business or large enterprises, get in touch if you are looking for credit managers or debt collectors. Our business cover Melbourne (VIC), Sydney (NSW), Brisbane/Gold Coast (QLD) and Perth (WA), for debt recovery & credit management.