Do You Really Know Who You are Dealing With?

During many of the conversations we have with FTA Members, we often inquire as to what risk management strategies/techniques they use to protect their balance sheet against customer defaults and/or liquidations. Most agree that trade references are almost useless. Apart from a few who obtain Dun & Bradstreet or Veda reports, unsurprisingly, the responses fall into similar groups and themes, including "We watch our receivables very closely"; "We have dedicated staff who contact our creditors on a daily basis to chase outstandings"; "We only deal with 'Blue Chip' companies"; "We only deal with companies we know and never had a problem with". Some have also said that significant alcohol intake just before bedtime to help them sleep at night works best for them!
 
Very few Members have a process in place for the ongoing maintenance or review of their customers. This can be dangerous, as organisations can change their operating entities for a range of reasons. You could easily miss (or dismiss as unimportant) that a new bank account is now paying the bills. A change in the Australian Business Number could be easily missed if the customer livery (such as letterhead etc) looks identical. It may seem that these changes are unimportant but if you miss them and something goes wrong you may end up having to bear the financial impact of any unpaid accounts. You may also not be given the opportunity to be recognised in the worst case scenario of your customer becoming insolvent.
 
We recommend that Members implement a periodical review which provides an excellent housekeeping opportunity to update your customer details. We also suggest that you review your T&Cs on a regular basis and incorporate any changes and advise your customers at the same time. In that regard, the FTA has recently made available a template set of T&Cs, drafted by Hunt & Hunt lawyers, which incorporates a credit application. We suggest you consider reviewing the FTA template to determine if it has applicability for your business.
 
Of course, the best way to protect your receivables is to have the creditworthiness of customers assessed on a regular basis and your trade credit debts covered under Trade Credit Insurance. If you haven't already done so, you can talk to us about the FTA Trade Credit Insurance program. It will provide "sleep easy" protection, without having to resort to alcohol!
 
Please direct any inquiries to James Cotis, FTA insurance adviser.