The current trading environment for Australian business is presenting unique and unforeseen challenges to both ownership and their management teams. In light of this, diligent credit assessment of customers is as necessary as ever before.

Rising rates of inflation, cash flow variability, and unprecedented global supply chain issues are applying significant financial pressures on medium to large Australian businesses, and cluttering the workload of their employees. Those already at risk of default on existing payments, or bankruptcy, may still look to engage with your business. This means it’s more important than ever to monitor customers’ payment behaviour.

Utilising business credit reports and monitoring tools could not only protect your business from bad debtors, and stagnant cash flow, but may also ensure the strength of your ledger. Additionally, the hassle of chasing unpaid invoices is removed from already busy workloads, and managed more efficiently.

The challenges for businesses right now

Two years on from the emergence of COVID-19, businesses are still juggling a multitude of issues – many of which were amplified during the pandemic. Strict lockdowns and restrictions, paired with international conflict, have slowed global supply chains and caused worldwide delays, and shortages of goods. Also, the tandem of international movement restrictions and domestic labour market adjustments have led to a skilled worker shortage within Australia, piling administrative tasks onto existing core staff.

Further, businesses and consumers alike are adjusting to the shock of rising inflation, with RBA predictions indicating the trend will continue. This has an instantly depressive effect on profit margins. Whether customers are hiking prices, or the latest interest rate hikes have limited business’ access to credit, everyone is feeling the financial pressure.

Those businesses that took on risky loan amounts during the low-interest era are instantly at risk of default. For many such enterprises, a default can spell the beginning of the end. In fact, CreditorWatch research  shows that 50% of businesses that incur a payment default will go into administration within 18 months.

It’s not uncommon to experience irregular revenues and turbulent cash flow as a result of these factors. Some customers may be struggling to repay invoices. This has the dual impact of jeopardising your business financially as well as creating productivity blockages. The increased logistical workload of chasing up unpaid invoices for upper-management employees, already wearing several hats, can be overwhelming.

As such, monitoring customer payment behaviour is key to reducing bad debt and its impacts on your business.

Why you need to understand your customers’ payment behaviour

Within this context of higher debt risk for business and individuals, ensuring accurate credit reporting mechanisms are in place will provide peace of mind. It is essential to your cash flow maintenance that you do your due diligence to have a clear view of your customers’ payment behaviours and business credit score before you engage.

Gaining access to business credit reports, or CreditorWatch’s DebtorLogic tool, offers a number of immediate benefits: 

Ditch bad debt – Without understanding a customers’ payment behaviour, there’s a chance of connecting with those already at credit risk. For example, a potential customer may have late invoice payments or a mercantile enquiry on their business credit file. Business credit reports will inform you of any adverse credit behaviours before you engage a new customer, and monitoring tools act as an early warning for your business to the risk of bad debt from new customers.

Maintain strength of your ledger and smooth cash flow – Once you identify the more at-risk potential customers, you can adjust your client base to ensure revenues remain consistent, and your ledger strong.

Cash flow stagnates when invoices go unpaid. This puts downward pressure on regular operations, and can limit the growth of a business as well as the ability to secure future investments. Monitoring customers’ payment behaviours with credit reporting tools allows you to avoid such customers and keep cash flow smooth and even. 

No more playing debt collector – The logistical workload of following up on unpaid invoices is as time consuming as it is frustrating. It also has the added risk of potentially damaging customer relationships when taken on internally. By understanding customers’ payment behaviour you can identify risky debtors before you engage. Put simply, assessing the creditworthiness of a customer ahead of time means no more playing debt collector.

One of the best ways to reduce this risk is through engaging with cutting edge monitoring tools. CreditorWatch’s DebtorLogic tool simplifies the protection of your assets, by doing the hard work for you and identifying high-risk debtors and customers with poor payment behaviour. It’s an interactive trade program that analyses customer and supplier payment trends, compared to the rest of the market, to illustrate the likelihood a customer would pay an outstanding amount.

With the right tools in place, you can safeguard your assets, and protect your business.