Bad money management – regardless of whether you’re at fault – can leave you wondering where it all went so wrong. Taking precautionary measures ahead of time is the best way to avoid debt becoming an issue down the line.
1. Credit checks
Before getting a new client, credit checks are a relatively simple and quick way to assess their ability to pay you.
While it isn’t particularly well known, Australian companies can access a company or individual’s credit history. Extensive real-time information and databases can be viewed through Equifax’s Business Credit Express or Illion Express.
When it comes to verifying information about a business you are considering working with, ASIC Business Checks app is the place to go.
2. Invoice properly
How can you be sure you’re sending out invoices correctly? A great source is the Australian government website, which details how to create an invoice, what you need to include, the different types of invoices and similar.
Equally as important as knowing how to invoice is keeping solid records of what invoices have been paid. SMEs across Australia are collectively owed $26 billion, and nearly three-quarters of all business invoices are paid late.
Selling products on a credit basis exposes businesses to even more risk. And if enough customers fail to pay, this could significantly impact your business’ ability to operate. One way to protect against this is trade credit insurance, which could prevent your business from grinding to a halt as you wait for payments.
3. Debt recovery
Resolving enduring payment issues through debt recovery is usually a situation you would rather avoid. But by following an effective process, you can hopefully achieve a good outcome sooner.
The first step – as advised on the Australian Government’s Business website – is reviewing the terms of your contract and the stipulated payment conditions. Then send an initial friendly reminder and several follow ups, which eventually lead to a formal letter of demand.
If you reach this point and all efforts have failed, you may want to contact a debt collection agency or service. This is usually a last resort, as it will often lead to a breakdown in the relationship between your business and the involved client.
4. Scam alert
For some time scammers have been impersonating businesses, sometimes claiming that clients must pay a recent invoice into a new bank account. The account is that of the scammer, which leaves the business and client out of pocket.
Preventing these incidents can be difficult, but relies on maintaining good relations with your clients. They need to be well informed on how your business operates – specifically that you will never change your payment details via email.
With technology becoming a fundamental part of how many businesses operate and a rapid increase in digital scams, many organisations find peace of mind in cyber insurance.
5. Insurance options
While there are plenty of preventative measures that can be taken, there is always still some level of risk when operating your business.
Inadequate cash flow and debts could hold your business growth back and even lead to insolvency. Insurance protects against this, so you can get the financial support you need when you need it most.
For more information, or if this article has brought up any queries, please don’t hesitate to get in touch with your insurance adviser.
Conditions apply for each policy and the information expected from you for a policy to trigger. Coverage may differ based on specific clauses in individual policies. Please ask your broker to explain the additional benefits and exclusions pertaining to your policy.
The information provided is general advice only and does not take account of your personal circumstances or needs. Please refer to our financial services guide which contains details of our services and how we are remunerated.