Reviewing history is necessary, but looking forward is most important

By Kirk Cheesman MICM*

Kirk Cheesman MICM

With the AICM conference just around the corner, I was reminiscing of past conferences. It got me thinking that it was not so long ago we were relying on trade references and receiving credit information via fax (some of my early days at NCI!). But how times have changed, now, there is an array of technological solutions to help with assessing potential customers, existing customers, and more.

There are many aspects to credit management. Generally, there is not one factor which fixes all concerns and assesses risk.

There is one thing that has remained constant over the 30 years that I’ve been in the credit management industry. From time to time, out of the blue and despite the best credit practices, business insolvencies do occur.

The question is, how can you use all the technology available to your advantage with the aim of minimising the chance of a bad debt?

Every day we experience varying levels of credit assessment tools, resources and spend being placed into credit management. However, there are a number of elements the best credit managers and businesses get right: 1. Have watertight terms and conditions and make sure they are signed. 2. They set out credit limits and have clear payment terms. 3. They gather information about that business’s credit history.

This is retrospective, so keep in mind things do change. Past performance is not always the best indicator of future performance, circumstances and trading environments evolve.

“From time to time, out of the blue and despite the best credit practices, business insolvencies do occur. The question is, how can you use all the technology available to your advantage with the aim of minimising the chance of a bad debt?”

4. They put in place measures to safeguard their business from a potential insolvency. Ongoing customer monitoring and alerts for early warning signs have become key elements with increasing data and technology. 5. If payments are late or a dispute arises, they ensure they have a third party on hand to elevate the pressure on getting paid quicker. 6. Register their security interests – if you supply goods, ensure you are protected in the event of an insolvency and have the means to recover your unpaid goods, or to negotiate with an administrator on recoveries for those goods 7. They use trade credit insurance.

This will protect cash flow and ensure, in the event of a loss, their hard-earned profits are not lost for ever. Data collected by NCI in 2022 indicates there is an increased chance of you experiencing a bad debt over the next year. Claims, collections, extended debts, and overdue reports from our clients suggest there are turbulent times ahead for credit managers.

Recently we surveyed NCI clients and of all the concerns they had, the worry of overdue debts and their client’s entering insolvency was number 3, surpassed only by concerns around increasing costs and labour shortages.

Now is the time to review the best practice points above to ensure that when you receive a letter from an Insolvency Practitioner regarding one of your customers, your business is in the best possible position to weather the storm.

“Every day we experience varying levels of credit assessment tools, resources and spend being placed into credit management. However, there are a number of elements the best credit managers and businesses get right.”

*Kirk Cheesman MICM Group Managing Director National Credit Insurance (Brokers) Pty Ltd E: kirk.cheesman@nci.com.au T: 1300 654 500 www.nci.com.au