Claims against defaulting debtors double

Businesses must run credit checks on their debtors and keep a close eye on their cashflow, experts have warned, after new data shows claims against debtors have risen by 105% since June 2008.

The data, released by National Credit Insurance (Brokers), shows 131 claims were made through NCI against defaulting debtors. The building and hardware sectors recorded $1.99 million worth of defaulted debts, while advertising and the electrical sector followed with $1.55 million and $924,874 in debts respectively.

Rob Lamers, chief executive of Oxford Funding, says the results aren’t surprising but still show the need for the businesses to remain vigilant in chasing debt.

“There are a couple of thing that businesses need to do. They need to be very aware that businesses are struggling and that if one of their customers feels the impact of debt, then it can have a real impact on their own business. They need to mitigate that risk.”

“No doubt businesses need to manage their cashflow. One of the biggest mistakes we see is that businesses place all their debt concentration in one particular debtor. We tell businesses to spread their debtors’ ledger, and in these times when the numbers are speaking for themselves, businesses need to be aware of this issue.”

Christine Christian, chief executive of Dun & Bradstreet, says businesses need to examine who they have in their own company chasing these debts and get them fired up.

“They need to get aggressive. The larger the company the better they are at managing their receivables, but they are the slowest to pay their bills. This really means that SMEs need to become far more assertive in chasing debt.”

“You need to train your credit department to really chase debts more effectively. Also, do credit checks before you do any new sales to make sure the company you’re dealing with is credit-worthy.”

But ultimately, she says, there isn’t much that businesses can do to reduce their exposure to bad debt apart from looking at your own company’s processes.

“There’s really only two ways to mitigate this risk, either reduce operating expenses and manage your receivables more effectively. You could also try to significantly increase your new sales but that also means more administration, and you have to manage the receivables of those anyway. Those are the only things you can do.”