10 Tools to Minimise the Risk of a Bad Debt

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Over 4,850 Aussie Businesses have gone broke in the last 6 months. That’s more than have gone broke in both the 2021 and 2022 financial years. What can your business do to be on guard against struggling customers?

The number of Aussie businesses going broke, and bad debts to suppliers are now back to well above pre-Covid levels. With ATO tax debt (Australia’s largest creditor) still will above $50 billion – further pain is expected.

The key to mitigating risks of bad debts is to be proactive rather than reactive. Here are 10 tools and strategies your business can implement to minimise the risk of a bad debt.

  1. Monitor Management Changes

Regular resignations among leaders could indicate a lack of stability. Be wary when extending credit in such instances.

  1. Track Asset Sales

Asset sales may signal other debts are being prioritised above your invoices. Keep an eye on this trend.

  1. Assess Service Quality

A sudden decrease in service standards can be a red flag pointing to financial constraints.

  1. Be Cautious with Rapid Expansion

Overexpansion can result in cash flow problems, making it difficult for the customer to honour invoices.

  1. Check Staff Turnover Rates

Staff leaving en masse could indicate internal or financial problems that may affect timely payments.

  1. Reassess Credit Terms

Consistently broken promises for payments should warrant a reassessment of the customer’s credit terms. 

  1. Evaluate Administrative Capabilities

A disorganised customer is more likely to be unreliable in payments. Assess their administrative capabilities carefully.

  1. Examine Financial Reports

Late filings can indicate deeper financial issues. Make it a habit to review these reports periodically.

  1. Look for Legal Indicators

A history of court orders or judgments against the customer signifies a pattern of default. Be cautious when extending credit terms.

  1. Trust Your Instincts

Your intuition can often be the best judge. If a business relationship feels risky, it probably is.

The risk of bad debts remain high. Businesses need to be doing all they can to mitigate the risk of loss. Trade credit and debtor insurance solutions are still available. The ultimate protection against bad debts is to implement a policy. 

Debtor Protect are boutique and specialist trade credit insurance brokers. We understand that every business has unique risks and we aim to tailor a solution to those risks. To find out how we can assist your business contact  us today.

Ian Markus

Director, Debtor Protect. 0481 772 123

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Make the strategic choice to partner with Debtor Protect. Take the first step towards unshakeable financial security by getting in touch with our team today. We’re here to help you navigate the complexities of credit insurance and ensure your business thrives against all odds.