Relationships with your Debtors - Tips on avoiding bad debts – Know your customer

Posted by Luke Mitchell on 08 September 2016
Relationships with your Debtors - Tips on avoiding bad debts – Know your customer

In our next series of blogs, we focus on ways in which you can avoid bad debts becoming a significant issue for your business.

The first tip arises at the outset of the customer relationship. In previous blogs, we have discussed the importance of establishing exactly who it is that you are doing business with.  When it comes to ensuring that you are paid for the goods and/or services that you supply, ensuring that you know who it is that you are dealing with is one of the most crucial matters.

Well crafted customer engagement documents issued at the outset of the relationship can save significant heartache down the track.  At a minimum, your initial customer documents should require the provision of the following information:

  • Name of entity/business;

  • Type of entity (e.g. company, trust, sole trader, partnership);

  • Name of business owner(s) or trustee;

  • ABN (and ACN where a company is involved);

  • Trading and postal addresses;

  • Phone and email contact details;

  • Details of the designated contact person;

  • A signature field.

It is one thing to have a well crafted customer engagement documents.  However, even the best documents are useless unless a business commits to issuing, and insisting on observance with, those documents.  It is undoubtedly tempting to “just get on with things” when a new customer is won, however a customer who is not willing to spend the time to complete and execute your customer engagement documents is probably a customer not worth having.

Once you have identified your customer, the next step is to do everything you can to know the customer.  From a bad debt avoidance perspective, that means performing credit checks on your client and  its principals and ensuring that you are provided with adequate security.  Credit checks are quick , cheap and easy to perform provided that you have made the investment in properly drafted engagement documents.

We specialise in providing clarity and confidence to business operators in their legal relationships with their customers. If bad debts are a problem for your business – or if you want to take steps to best protect your business from a bad debt crisis -– contact us and benefit from our knowledge and experience.