Home Articles Five credit checks you must do before putting customers on credit

Five credit checks you must do before putting customers on credit


Does this sound familiar?

You’re excited at getting your first clients on board. And like any entrepreneur with a passion, you’re focused on building fantastic customer relationships and exceeding their expectations.

But, if there’s one thing that you shouldn’t give in on, it’s the cash.

Take precautions to ensure that your “loans” are repaid.

Don’t ever rely in the fact that your customer is a ‘good bloke’, or make the assumption that their business can’t fail because they’ve been around for years.

In other words, you need to act like a professional moneylender and do your due diligence. Here’s how.

Five credit checks that you should use (inexpensive, or free)

There are five free or inexpensive checks that I use to guard against debt default. I repeat them every three months for as long as I have a business relationship with a company. 

The information you obtain from running these checks can give you an early heads up of possible problems and help you decide if you really want to do give credit to someone.

1. ABN Lookup

Use this when you want to check that your customers are who they claim to be. Run their business name or ABN through the free ABN Lookup to verify details.

The search will give you the entity’s legal name, the type of entity, its trading names and how long it has been active. Obviously, if someone gives you an incorrect ABN number or business name you should be asking why.

2. Insolvency Notices

If your customer is in financial difficulty or under attack from its creditors you may find out by visiting ASIC’s Insolvency Notices  website.

Type in the company name or ACN and you’ll see if there’re any current wind-up notices.

3. ASIC Alert

Set up a free company alert here so that you’ll be told if a customer is being sued for unpaid debts, if court orders have been made, or if there has been a material change to the operations of the business or management.

4. PPSR Search

Personal Property Securities Register  will give you a sense of the size and type of debts your customers have.

This information will tell you who has first dibs on the company’s assets if it fails and may indicate to you that if things do turn bad your chances of getting your money back are slight.

Finance companies, hire companies and other large creditors will often place a charge on the PPSR over an item of equipment, a vehicle or all accounts. You can lodge your own PPSR if you want to protect your debt, but you should consult an expert about this.

5. Social Media

You got that right. Be Nosy.

Google the company, the directors and others you deal with. Check out the review sites and personal Facebook pages. I have declined credit to an individual whose FB profile indicated poor judgement and character. Set up your own LinkedIn profile and connect with your customers.

Status updates can reveal changes to their circumstances, which can inform your credit decisions. 

Trust, but Verify

While the tips above don’t guarantee you will never lose money they will help you to understand your customers better and to confirm their bona fides. In the lending game the phrase, “trust but verify” should never be forgotten.

Paul Ransley is a debtor and invoice finance professional and co-owner of www.singleinvoicefinance.com where you can find instant relief from stress caused by poor cash flow.