Credit Management Credit Risk Logistics
5 mins read

How transport and logistics companies can manage credit risk

Within the unprecedented high-cost trading environment across multiple Australian industries, high volume Transport and Logistics companies are broadly exposed to credit risk. Ensuring the creditworthiness of suppliers and clients alike is crucial to securing the future of your cash flow and business.  

High inflation rates, supply chain issues and skills shortages are creating excess cost pressures for large companies already at the mercy of international price variability for products, such as fuel. As margins continue to tighten across the board, high-overhead, capital-dependent industries, such as Transport and Logistics, must maintain operation to avoid risk of default.  

As expenditure goes up to cover the rising costs of operations, so does the reliance on the regular payment of outstanding credit to maintain revenues.  

Credit risk challenges for Transport & Logistics companies 

Large companies within this sector have a reliance on variably-priced goods, and the impact of higher prices for these goods is felt immediately. Raw materials, often imported, are subject to occasionally extreme fluctuations in price, which can quickly increase overheads. 

For example, recent rising fuel prices internationally have been felt more within this industry than perhaps any other. These prices are subject to change quickly, and are impacted by international disputes, logistical difficulties and protectionist policy. For a large company within this space, a sharp increase in the price of fuel often corresponds to a sharp uptick in overheads.  

Similarly, labour shortages domestically have also contributed to a higher cost of doing business for many companies. As the supply of skilled workers has dwindled, the wages required to bring them onboard have increased. The cast of hiring and retaining talent in such a market can tighten margins significantly, especially when the role being filled is crucial to operability.  

Cash flow is essential to cover any increases, and it may be better guaranteed by ensuring the credit health of customers or clients. Late payments and bad debt stifle revenue, affecting the company’s ability to pay its own outgoings.  

A combination of bad credit and high priced goods can very quickly push your company towards the threat of default. In fact, Transport and Logistics has seen some of the highest rates of default amongst all industries across Australia.  

How Transport and Logistics companies can mitigate credit risk 

Despite these challenges, a business within this industry can still pre-empt and plan for a high-cost environment and its associated risk. There are a number of safeguard products and procedures that your company could implement to protect itself from exposure to bad credit and default. 

Implement trusted credit reporting – Credit reports detailing the creditworthiness of customers and suppliers will create additional peace of mind for any large business. Learning ahead of time about any unforeseen credit risk, or bad credit, could mitigate a number of potential cash flow issues. Tools, such as Creditor Watch’s RiskScore, provide the most accurate real-time credit ratings based upon live data feeds, to ensure that the credit report given is contemporary and relevant.  

Within transport and logistics, this also concerns trade partners supplying necessary raw materials, such as fuel, in order to safely predict a steady supply of product. If a supplier business returns an unsatisfactory credit score check, then they themselves may be at risk of default, placing doubts over their ability to maintain volume.  

Streamline customer onboarding – When a consistent revenue stream is required to maintain operations, as is the case in transport and logistics, the customer onboarding experience needs to be as easy to navigate and process as possible. Not only will this maintain revenues, it also assists customer satisfaction and sales.   

The elimination of application errors, consolidation of terms and conditions, and reduced processing time allowed by an application, such as ApplyEasy, creates the ideal platform to assist both a business and its customers to have seamless interactions. Additionally, automated credit checks within this product may provide a further safeguard against exposure to credit risk. 

Be proactive in debtor management – If there is any outstanding credit to the business, there are frameworks and products that can be put into place in order to effectively communicate with, and manage, that debtor. Failure to do so may result in late or no payment, putting the business at default risk.  

With DebtorLogic, companies can avoid slow-paying businesses, using real-time data to make informed decisions about who to take on as a client and how to manage that interaction. Payment trends provide hard data, illustrating a potential client’s capacity to ensure payment is made, and in a timely manner. As clients become more risky, possibly as a result of some of the high cost factors outlined, this information is passed on to you. This allows a business to act according to the most relevant information, as opposed to using outdated numbers. 

Use only high quality data – The decision of a business is often only as good as the numbers that it relies upon. If the capacity for data collection is low, and infrequently updated, then a business cannot hope to minimise the credit risk they’re exposed to. Considering the tight margins within transport, this is a risk few can afford to take. 

A Creditor Watch Portfolio Health Check will ensure that the accessible data for a business is relevant, accurate and timely. This comprehensive review of customers and trading partners both ensures that any outdated or inaccurate information is disposed of, keeping the database current, as well as providing real time credit data to give the business the best possible picture of customer credit risk.  

Engage in expert risk assessment Leveraging the expertise of credit management companies to perform a full analysis of a customer, and any associated credit risk to your business, is especially apt in such a high volume industry. A full Financial Risk Assessment utilises company financials, ASIC records and CreditorWatch’s exclusive trade payment data, over a period of two to three years, to give the clearest possible picture of the risk exposure from clients and suppliers alike.  

As the volume and value of trading with any partner looks to increase, the need for this level of assessment grows. A business cannot make a fully informed decision about any high-value partnership unless they are completely armed with all of the appropriate information.   

Despite the current high cost of doing business, there are still opportunities for business within the Transport and Logistics industry to thrive within Australia. It’s simply a matter of using the right tools to collect the best data.  

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Sarah Ward
Business Development Specialist | Credit management and Collections
Sarah is a highly experienced business risk, credit management, collections and business development specialist with over 10 years of experience. She is an expert in identifying and mitigating risks and has helped numerous businesses gain a deep understanding of the latest trends in credit management. Sarah’s recent work includes writing about high-risk businesses and how to identify them and providing insights on using a risk assessment tool like CreditorWatch’s RiskScore to make informed decisions. She also emphasises the importance of performing due diligence on new clients to assess their credit risk and mitigate cash flow risk. Additionally, Sarah has also written about cash control and how to improve debtor management. Sarah’s recent work includes writing about high-risk businesses and how to identify them and providing insights on using a risk assessment tool like CreditorWatch’s RiskScore to make informed decisions. She also emphasises the importance of performing due diligence on new clients to assess their credit risk and mitigate cash flow risk. Additionally, Sarah has written about cash control and how to improve debtor management.
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