The number of businesses in Western Australia that are appointing insolvency practitioners to administer them have been steadily increasing over the past decade.
If your business is owed money by one of these businesses teetering on insolvency, there are things you can do before agreeing to do business which will maximise your prospects of being paid if something goes wrong:
- If a client or customer wants to open an account on credit, conduct a credit check on the underlying entity before you commence doing business. Dun & Bradstreet Express offer Payment Analysis Reports for $119. These reports provide you with information like whether the directors were previously involved in a failed business, the amount of credit other suppliers usually extend to them, and whether or not the business / its directors are involved in any litigation. This information allows you to make a partly informed decision on the client/customer’s ability to pay or whether to provide credit standing before agreeing to do business.
- If a credit check indicates that the business, its underlying entity or its directors are involved in litigation or otherwise indicates any other red flags, only agree to do business with the client on cash-on-delivery terms.
- Ensure you have terms and conditions in place that contain succinct terms favourable to you. You should review your terms and conditions to make sure they include, where appropriate:
(a) Clauses that enable you to recover outstanding debts summarily (quickly) without a right of offset;
(b) Clauses that entitle you to charge interest on late payment;
(c) The grant of a security interest under the PPSR. This provides you with a security interest over specified personal property (e.g. a vehicle or goods provided on retention of title or consignment) or real property (e.g. a mortgage or caveat over a house or land); and
(d) A personal guarantee from one or more of the directors (which are increasingly difficult to obtain). - Establish good credit control measures within your business so your clients or customers are followed up as soon as debts become overdue to ensure debts do not last for extended periods.
- Take out trade credit insurance with a reputable insurer.
- Be responsive and act swiftly when a debtor indicates they are unable to pay or need assistance.
Some of these steps may seem obvious to you, but it is surprising how some businesses assume significant levels of risk without putting these safe measures in place.