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Seven warning signs in a credit report you might not know about

CreditorWatch’s credit reports contain unique data and insights to help business of all sizes better manager their credit risk and credit score. To help you leverage all the information in our reports, here are seven warning signs you might not know about.

 

  1. Cross directorships

cross directorship occurs when an individual is found to be the director of multiple companies. When a director has an adverse action registered against another one of their companies, you may be exposed to the knock-on effects without even being aware of it. Mitigate this risk by conducting director due diligence to get a clear idea of who you’re dealing with and if there are any vague credit accounts or red flags.

 

  1. Court actions involving WorkCover

When reviewing court actions, look out for WorkCover as a plaintiff. It is known to be one of the most aggressive creditors in Australia and regularly winds up businesses. It aims to maximise benefits for its client, putting the defendant at risk of entering administration.

 

  1. Sudden dips in payment times

It’s quite clear that a business is struggling if its payment times begin to increase. However, another warning sign is if payment times suddenly drop to zero days or just one to two days. This often means that suppliers have begun to cut off the business and moved to cash on delivery. So, although it may look like it has started to pay its bills on time, it is probably experiencing serious cash flow issues.

 

  1. The last big order

If an entity makes an order that is significantly larger than normal, this could be a precursor to its disappearance, especially when dealing with goods that can be on-sold. It could indicate trouble if the order is out of character, there’s no proof that it has secured a large deal and payments have been slowing down before this. Make sure you have appropriate security in place to protect yourself.

 

  1. Credit enquiries

More credit enquiries do not necessarily mean more risk. It is important to consider the industry and observe patterns. For instance, a contractor that has landed a big project may be looking for new suppliers to fulfil that order, resulting in more enquiries. However, more enquiries could also indicate that it is ‘supplier hopping’ and unable to fulfil payments. If an entity is suddenly getting multiple enquiries from finance companies, it could mean that it is applying for a lot of new credit or is unable to secure finance.

 

  1. Directors’ residential addresses

When conducting a credit check on an entity, look at the street view of the director’s residential address. Seeing where and how they live can be an indication of how much collateral they have. If the director lists their commercial address with ASIC, this is a warning sign as it usually means they don’t want to be found if/when something goes pear-shaped.

 

  1. Changes to directorships

If a business with multiple directors has a change in directorship, it could mean that it is beginning to fail, and the directors have arranged for one of them to take the hit. It is also important to investigate the transfer of directorship to a spouse or relative. Directors often do this to start a new business and leave the bad record and credit history with someone else. Having a new director could change the company’s operations, the nature of your relationship and erode existing trust and creditworthiness.

 

When onboarding new customers, ensure that your credit application matches the credit report exactly. Generally, it also helps to go with your gut. If customers are displaying behaviour that doesn’t feel right, such as being elusive about signing guarantees and disclaimers, not completing paperwork properly or changing delivery addresses regularly, don’t dismiss these warning signs.

CreditorWatch’s credit reports are simple to understand, with areas of concern highlighted on the front page, making it impossible to overlook warning signs. If you’d like to learn more, get in touch with one of our experts today.