Three myths of credit reporting

Myth #1: My customers have been buying from me for years. I know they will continue to be reliable payers.

Eighty per cent of bad debt comes from customers who have been on the books for at least 12 months. This means your riskiest customers are in fact the ones you are paying the least attention to. With more than 100,000 businesses rated a higher risk of paying their bills in a delinquent manner in the December quarter 2012, it's imperative that you identify the risks before they catch up with you.

Myth #2: My customers are too big to fail.

Unfortunately, thousands of suppliers thought the same things about companies like Air Australia and construction firm St Hilliers. The truth is, big businesses fall and they fall hard, causing havoc for their suppliers. More than 28 per cent of firms with 500+ staff were rated a moderate to severe risk of experiencing financial distress in the December quarter 2012 - some of them could be your customers.

Myth #3: Before I take on a new customer I require three trade references. This ensures I hear from other suppliers about payment risk.

No potential new customer is going to refer you to a business they've been paying late to. The truth is that trade references need to be independently verified and assessed. One of the most reliable ways calculate payment risk is to look at past payment behaviour, which can be combined with demographic and financial data to objectively calculate the probability of a firm paying in a severely delinquent manner. 

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