A payment default is a black mark on a credit report, indicating an entity has not paid its debts. Payment defaults are unique to CreditorWatch, providing valuable insights into delinquent payment behaviour. According to our data, 25 per cent of businesses with a trade payment default will become insolvent within 18 months. All CreditorWatch customers, from sole traders to large corporations, are able to register payment defaults on our bad debt register. This innovative feature enables businesses across Australia to uncover, deter and penalise non-paying entities, empowering them to make better business decisions to protect their cash flow.
Here are five reasons why you should register a payment default against late paying customers.
1. Threat of registering a default acts as a deterrent to slow paying debtors
Registering a default is one of the last steps in recovering debt. Before lodging a default, use our debt collection tools, which include automated letters of demand and payment reminder notices, to expedite payments.
If your debtor still has not paid, issue a final notice letter threatening a default. This demonstrates that you take the debt seriously and is often enough to prompt payment. It operates as a deterrent for slow paying debtors, motivating them to pay on time to avoid being listed on the bad debt register.
2. Prompt non-compliant debtors to settle outstanding debts
A payment default stays on an entity’s credit report for up to five years, affecting its credit file and reputation. Registering a default is a powerful way to encourage your debtors to pay you faster. It prompts non-paying debtors to settle their outstanding debts out of fear of ruining their credit score. While payment defaults cannot be removed after being lodged, they can be marked as “settled” once paid.
3. Warn the debtor’s trading partners about their financial struggles
When you lodge a payment default, CreditorWatch will automatically alert its 55,000+ customers about it. This means that anyone else dealing with your debtor will be informed about their failure to pay. Likewise, when another creditor lodges a default against one of your customers, you will be warned that this customer may be in more financial trouble than you realise.
Registering a default helps collections teams better manage risks within their customer base. Upon realising that an existing customer has an active default, businesses will be able to update their risk mitigation strategies accordingly, for instance, by asking for cash on demand, adjusting credit limits, expediting debt collection or cutting ties with the entity. By monitoring customers for defaults, businesses can reduce their risk of trading with entities which may soon become insolvent.
4. Discourage other businesses from trading with the debtor
Anyone who runs a credit check on your debtor will see the default on their credit file. Registering a default will deter other companies from doing business with it. In fact, 91 per cent of CreditorWatch customers would not engage with a company with a default. Potential customers may think twice about opening an account with the entity, while potential suppliers may decide not to enter into a contract with them.
Registering a default is a punitive tactic which would hinder new business opportunities for your debtor. To prevent this, non-compliant debtors will be more compelled to pay their debts.
5. Increase your chances of clearing written off debts
It’s never too late to lodge a payment default. You can still lodge defaults against debts that have been written off. These debtors will be prompted to settle their debt to clear their credit files.
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