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This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.


Credit when credit's due

For many businesses, offering trade credit to customers isn’t optional. Whether its seven days or 90 days, providing credit leaves your business exposed to late payers and bad debts from those who will never pay. Providing trade credit also consumes your precious cash, the cost of which is escalating as payment terms get longer in the current economic environment.

With these risks and the costs in mind, it’s vital in today’s market that your business be prudent in who it lends to. But how do you protect your business without scaring off potential customers with the Spanish inquisition? The key is to find ways of getting the assurance you need without causing offence.

The following ten tips will help you strike this balance and make the right choice about which customers you’ll extend credit to:

Set a credit policy

Have set criteria for extending credit to customers that is followed in every instance. Importantly, it shouldn’t be onerous, just enough to ensure you know the details, history and reliability of those you’re providing credit to, including how much can be lent and for how long.

It’s not personal

Be sure not to let close personal relationships with potential customers or the desire to make a sale override these commonsense guidelines. If you do have doubts, check them out before supplying goods.

Know your borrower

As part of the sales process, ensure you find out sufficient information to know the potential client’s details, such as who owns the business and who manages it day to day. A standard application from can encapsulate this and any other information necessary to establish their account.

A bankable reputation

Complete a credit check with a reputable agent such as Veda Advantage ( or Dunn & Bradstreet ( This will tell you a wealth of information, including whether they have had prior credit defaults, court action and who the owners and directors of the business are.


In addition to checking on potential customers through your own industry network, ask potential credit clients to provide a few trade references from their existing suppliers. When you speak with them, seek details on any late payments or amounts currently overdue and ask whether they have any concerns.

Laying the ground rules

Set out the credit terms provided to your clients clearly, ensuring they are enforced. These should include the number of days credit is extended for, the amount of credit, any penalties that could be incurred and the appropriate method for making payment. You may like to start off small and gradually increase the amount of credit provided to new customers, allowing you to develop a payment track record before lending significant amounts.

Passing the buck

In addition to the ground rules, you’ll need to spell out additional remedies if your customer fails to pay on time. These should include the right to pass onto them any legal fees and collection costs, as well as the fact that the matter will be resolved if necessary through courts in your local jurisdiction rather than interstate or overseas.

Be prepared

Track payments closely and be proactive by following them up before they become a real problem. Make sure there’s a plan in place for what actions will be taken when a customer does inevitably default on monies owed to your business, including the preparation of template letters, checklists etc.

Staff training

Train your staff on the new criteria, enabling them to understand the importance of, and how to use the guidelines. They need to be able to pitch it to potential customers as a minimal inconvenience that’s designed to ensure that you will be a long term supplier to their business.

Ongoing management

As your business grows, it’s important to have the specialist skills in your business that are necessary to assess and manage client’s credit amounts. Whilst initially this may be the business founders, eventually this will be a transition into a separate role and employing a suitably experienced specialist staff member will be necessary.

Now that you’ve formulated a credit policy, it should also be applied to your current customers, as new customers aren’t the only ones who can get into trouble.

So how do you do all this without causing offence? The key is to be courteous at all times and minimise any disruptions to your clients. If the above are integrated seamlessly into the sales process, you’ll find clients hardly even notice.

Matthew Nolan
My business, June, 2009


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