How an enhanced credit application process can protect your business from bad debts

Businesses who extend credit to their customers face the risks of non-payment or delayed payment that impacts their cash flow and business growth.

To mitigate such risks, businesses need a robust credit risk management policy. The key elements that the credit policy needs to include are:

• A comprehensive understanding of the customers’ risk profiles – Verify the legitimacy of businesses by checking their ACN or ABN numbers apart from obtaining details such as place of business, contact details and credit references. For individuals, assess their credit score, history of payments with other creditors, contact details, address and litigation history, if any.
• The business’s risk tolerance levels – Evaluating the business’s risk appetite is vital to determining what constitutes a safe credit risk. One way to assess your current credit risk is to calculate the daily sales outstanding (DSO) and receivables turnover ratio. While a low DSO indicates your outstanding payment collection is quick and effective, a high score indicates payment delay. A high score on the receivables ratio also shows that your business has a healthy system of payment collection.
• Clearly worded and carefully crafted credit terms and conditions – To minimize credit risk, crafting the terms and conditions, as well as wording it clearly, are crucial. Include relevant details such as the credit check process, references, penalties for late payment, disclaimers, terms for terminating the contract and time frame.
• Effective customer relationship management – A streamlined customer relationship management (CRM) software tool can help you communicate seamlessly with your customers while enhancing their experience. With timely reminders, you can ensure there are no late or missed payments.
• Ongoing monitoring and risk assessment – After you extend credit, best practices in monitoring and payment management can help minimise risks of delayed payment or non-payment. Ensure ongoing monitoring of your debtor’s credit rating and risk while ensuring a fine-tuned process of overdue payment collection. Terminate the contract with your debtor when your risk reassessment process shows there is a decline in debtor’s credit rating or that there are adverse events such as court ruling.

A strong credit application process is the key to minimising your risks

While these factors play a crucial role in minimising your risks, the key element in the credit risk management process relates to the credit application system. A recent survey indicates that a key source of information for a majority of credit managers across businesses is the credit application form. The credit application helps credit managers and businesses make an informed decision on extending credit to the right customers.

Creating a comprehensive credit application form that captures crucial information, such as:

• The full name of customers or business entities
• Business structure such as company, sole trader, partnership
• Details of directors, owners and partners of the business
• ABN or ACN of businesses
• Postal address
• Email address
• Telephone numbers and place of business
• A minimum of three references and their contact details
• A signature to confirm the debtors have read and understood credit terms and conditions
• Customer approval for conducting a credit check

While these details help you assess the ability of customers to meet their credit payment obligations, the credit terms and conditions set out in the application form help to

• obtain credit reports as per the Privacy Act of 1988
• ensure the debtors understand and accept the terms of credit

How smart is your current credit application process?

If your business is utilising paper/pdf/email-based credit applications, they could be impacting your business profit and growth in a significant way.

The impact on your business is three-fold:

Poor customer experience – Filling the paper-based or PDF-based credit application form each time the customer applies for credit is not only time-consuming but can be a frustrating experience. Apart from filling in contact details, debtors have to fill in many fields in the form including references, their contact details, and for businesses, ABN, ACN, and business structure details. Customers who are looking for a quick process to complete a purchase are faced with longer times for filling and submitting the form, which in turn means they need to wait longer for credit approval.  Eventually, the delay reflects on your sales while the poor experience in filling manual forms can make your customers turn to your competitors who have a simplified system.

Prone to errors – Illegible handwriting or unintentional errors while writing on paper or PDF credit applications can lead to more errors in reading and transcribing the data into your systems. It is quite common for a debtor to write the business name or ACN / ABN incorrectly. Clearly, the impact of having the wrong address, company/business number and contact details will enhance the credit risk as there may be no means of contacting your customer in case of delayed payment.

Relies on data and references provided by the customer – Manual credit application forms are not just time-consuming but can be misleading, leading to your business extending credit to unsuitable customers. With the paper-based credit application system, you are essentially relying on the information and references that your customer provides. No customer would want to paint themselves in poor light when it comes to references, and negative information is likely to get hidden from your view.

Manual credit application processes increase the chances of errors and impact your decision-making significantly. They lead to longer processing times which means your sales might be impacted – and they rely on your customers providing trade references, which may not give you a completely unbiased view of your potential risk with the new customer.

The solution: Switch to a Digital Credit Application

When your current paper-based credit application process is hurting your business, it is time to switch over to a smart online credit application system from ezyCollect.

ezyCollect’s automated credit management system optimises efficiency and accuracy to ensure you make the right credit decisions every time. The process ticks the right boxes in terms of credit reporting apart from enhancing customer experience. Our online credit application leverages real-time data from the market, customers’ historical transactions, and payment track records to make smart and accurate predictions on late payment and non-payment.

The state-of-the-art online application process is quick, seamless and accurate. This helps minimise errors and eliminates the delays in turnaround time associated with manual processes.

With ezyCollect, you can empower more new customers to make their credit application online. By eliminating the laborious manual and administration data entry, the application turnaround time is reduced, which shortens your sales cycle.

Here are the key benefits of switching over to ezyCollect’s smart Credit Application system:

Easy to use – The online form for credit applications is easy to use, doing away with the time and effort needed to install and master complex software. The application form can be fully customized to match your company’s color scheme & branding. Your customer can access the online form with a simple click on the link provided on your website.

Get real-time updates on business credit scores – Get a clear view of your customers’ payment habits and the most accurate prediction about their ability to make timely payments. ezyCollect provides a Failure Risk Score and Late Payment Risk Score based on a partnership with illion, one of the world’s leading credit reporting brands – which gives us an extensive database of payment information and other variables such as payment history, court actions, financial statements, payment defaults, company age and business structure. This helps you get a complete picture of the credit risk associated with any potential customer – so you can negotiate the terms to suit. Eg: Credit Scores using ezyCollect’s ABN

These comprehensive credit scores help you identify the customers who may pose a risk to your business in terms of credit payment.

Option to request a comprehensive credit report – ezyCollect facilitates informed decision making whether it is for low, medium or high-risk credit decisions with insightful reports. Leverage the option to request a comprehensive credit report that offers everything you need right from payment predictors, risk scores, identification details to financial stability predictors. The comprehensive credit report includes the business’s credit history, long-term operations, stability and profitability, which removes guess-work from your credit decisions.

Perform credit checks on your existing as well as new customers with ezyCollect’s comprehensive credit report. Gain valuable insights on a company’s credit risk thanks to the access we have to exclusive and shared data sources.

Complete audit history showing all steps in the credit application process – Get access to real-time ASIC data that enables you to confirm the existence of a business entity and its operational status. Make the best decision with historical data on previous company names, addresses and directors that allows tracking of the entity’s previous structure and financial history. With automated assistance for completing the online application, the time for credit can be reduced drastically, that translates to seamless customer experience and more sales.

ezyCollect empowers businesses by maximising their competitive advantage with real-time and updated information on customers and accurate prediction on credit risk. By using our online automated credit application process, you can realise exceptional business benefits that include onboarding new customers in quick time, improving customer satisfaction and outperforming your competitors. With all the information you need available at your fingertips, you can optimise decision making, avoid bad debts while ensuring your cash flow is healthy.

Switch to ezyCollect credit applications to make the credit application process easy, engaging and hassle-free for your customers.