Learn to manage debtor risk

Quick and skilled at camouflage, supplier hoppers have been plaguing Australian businesses before COVID-19, but their ill effects are more widespread than ever.

JobKeeper is due to end in March, and yet thousands of businesses are still struggling to make ends meet. This is especially true in my home city of Melbourne, where I am still witnessing the effects of a 111-day lockdown (and a more recent snap 5-day lockdown) first hand.

As government support is wound back and COVID lockdowns are still being imposed, it’s imperative to recognise cash-strapped traders that are hopping from supplier to supplier without detection.

What is supplier hopping?

If a debtor is unable to pay their supplier’s invoice, they’re placed on stop credit status. To overcome this, the debtor will move to a new supplier to place their orders and continue to trade. The cycle repeats as the business constantly moves around in search for credit they can’t afford to pay back.

Sound familiar? If you’ve experienced any of the following red flags, you could be at risk from a supplier-hopper customer.

• Your customer is slow to pay you back. Maintaining control of your accounts receivables is essential for positive cash flow. Check their Payment Predictor to determine if their payment behaviour is worsening.
• There has been an influx of credit enquiries on your customer’s credit report. This usually means they’ve reached out to new suppliers.
• Payment defaults have been lodged against the business.
• Your customer appears and disappears from your ATB in monthly intervals.

Offering credit always presents a range of risks, but you can mitigate these risks with effective credit risk management practices.

How do I avoid the effects of supplier hopping?

• Perform a company credit check before choosing to trade with a new business.
• Ask for a trade reference from a current supplier of any new customer.
• Implement a strict credit policy and stick to it.
• Become a secured creditor through the PPSR and avoid the preference payment trap should your customer become insolvent.

If you’re concerned there are supplier hoppers in your midst, a business credit report should be your first port of call, like it was for Paige Hastings, Operations Manager at Diamond Valley Mitre 10.

Paige says:

“When we first started using CreditorWatch, we noticed that one of our slower paying customers had court actions registered by other wholesale timber providers. It was a clear sign that they were ‘supplier hopping’ and allowed us to reconsider our policy around extending credit and credit limits to such businesses. We are now actively seeking evidence of this behaviour before extending credit to new customers.”

If you have any questions about how to safeguard your business from debtor risk or how CreditorWatch can help, don’t hesitate to get in touch via my details below.

Hilbert Klaster

Hilbert is a Senior Business Development Manager, working from the CreditorWatch Melbourne office. He loves meeting and working with people from a diverse range of businesses and industries across the state.

Hilbert has honed his sales and management skills over a long career, including internationally as a technical manager in the LPG industry

Hilbert is also a qualified motor mechanic and has previously operated his own wholesale business. He enjoys fishing, coaching his son’s football team and embarking on handyman projects around the house.

Connect with Hilbert on LinkedIn.