The world is full of uncertainties, and it’s no secret that managing your credit risk can be challenging in unpredictable times. With the financial market constantly fluctuating, it’s essential to have a solid plan to protect yourself from potential losses.
This blog post will provide tips on mitigating credit risks during uncertain times. These actionable tips will ensure your business stays financially secure in the long run.
Tips For Managing Credit Risk
1. Know your Debtor
It all starts with ensuring you deal with the right entity. Before entering any commercial agreement, carefully read and clarify all names, addresses, contact details, and other identifying information of the legal entity you are contracting with.
If a legal entity has changed its name recently, ensure that the changes reflect the new name. Be aware that some Australian Business Numbers (ABN) relate to trusts. In these situations, knowing who the trustee is is very important.
2. Call On Your Invoice before it is Due
Calling on your invoices before they are due is critical, particularly If you have customers who do not pay on time. This can help you ensure your cash flow isn’t affected by late payments and that you won’t be left hanging if any of your customers can’t meet their financial obligations.
It can also help you monitor changes in economic conditions and adjust your risk appetite according to changes in interest rates or other variables that might impact your supply chain. You can mitigate short-term risks while keeping a long-term view in mind so you don’t miss out on future opportunities.
3. Have PPSR In Place
The PPSR, or Personal Property Securities Register, is an Australian national online register that allows businesses and individuals to secure their interests in personal property used as collateral for loans or other credit transactions. By registering interest on the PPSR, you can protect your rights to the collateral in case the borrower defaults. This ensures you have a legal claim to the property, which can be crucial for recovering losses.
Before selling goods and services on credit, you can check the PPSR to see if other security interests already restrain the property you’re considering as collateral. This helps you make informed decisions about the creditworthiness of potential borrowers and avoid taking unnecessary risks.
4. Obtain Personal Guarantees
Personal guarantees are promises by directors of companies or even individuals to pay outstanding debt should their company fail. It’s important to remember that personal guarantees must be kept up-to-date to remain valid. If any information, such as director names, address details, or contact numbers, changes, you should update the guarantee.
5. Consider Trade Credit Insurance
It’s important to consider taking out credit insurance if the debt owed to you by your customers and clients becomes worth more than $50k. With credit insurance, you can protect your business from bad debts, so you don’t end up losing out and being at financial risk due to a customer not paying their debts when due.
Having credit insurance in place gives you peace of mind knowing that if any of your customers cannot settle their debts for reasons covered under the policy. This means there’ll be no impact on your cash flow and business activities. With credit insurance, you can increase your capacity to provide larger amounts of credit.
Niche Trade Credit Can Help Protect Your Business
Niche Trade Credit offers credit insurance to help protect businesses against bad debts. With a trade credit insurance policy from Niche Trade Credit, you can rest assured that, come what may, bad debts won’t be a major issue for you. Contact us now to learn how Niche Trade Credit can protect you and your business in uncertain times.
*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.
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