Can you spot a Dodgy Business?

When the economy is doing well, both small to medium business owners can afford to be selective with whom they choose to do work with.

However,  when work becomes difficult to find and the bills add up. Business owners will take any work that comes over the phone or through the office door.

Is it smart to take on any work that comes along?

How do you know if a new client you are about to work with is dodgy or not?

What resources are there that you can quickly use for free?

It is important to reassure yourself before you commit to a substantial contract with a new client.

Do they have a good credit history?

Don’t end up like Roger the Plumber

Roger (fake name to protect their identity) runs a small sole trader plumbing business with his wife.

A new client needed some extensive plumbing work completed on their personal home.

Roger knew that the beginning of the year to Easter is a very slow time, with the phone pretty quiet and inquiries almost non-existent.

This new client’s job would be around $55,000, half of Roger’s yearly turnover and as such, was too tempting to turn away.

Roger took the new customer on face value, without considering the implications of the job being 75% materials and 25% labor.

As the work progressed,  the new customer was friendly and always onsite.

At the completion of the work, Roger was shocked when they refused to pay.

Not only that, they appeared as if they had vacated the property and the number Roger dialed was soon disconnected.

Legal avenues proved fruitless and Roger found himself in a very difficult situation financially.

Instead of declaring bankruptcy, Roger started working as a employee with a larger firm and arranged a payment plan with his suppliers.

Here are some ideas you can apply to insulate your risk of not being paid. 

1. Set a maximum limit that you will grant all new clients ie $1000

2. Carry a portable paypal or eftpos system with a payment always completed upon completion. [ tweet it ]

3. Check a customer’s credit history for all contracted amounts above $1000 or more. [ tweet it ]

4. Ask new clients to provide credit references with a number of their regular suppliers. 

5. Does your new client employ a bookkeeper or accountant?  Get the details and forward the invoice directly to them as well.

Companies or sole traders who employ a bookkeeper or accountant (even on a part-time basis) will usually have financial records in order and are more likely to pay invoices on time.

Where can you find out credit history information both free and paid services?

FREE RESOURCES

ASIC’s MoneySmart web page has a list of companies you should not work with. [ Money Smart ]

ACCC’s webpage also has an extensive list of dodgy operators  [ Scam Watch ]

ATO’s free business app [ ATO] can be downloaded to check basic company information.

PAID RESOURCES

Veda applied intelligence can print out levels of company credit history for you, for a price [ Link ]

Dun & Bradstreet have both paid and free business credit reports [ Link ]

Credit Checks and paid resources are too much money

You might be thinking that $90 – $400 is  a lot of money to outlay for peace of mind.

It’s only when your facing the possibility of a client not payment a bill, that the implications of still being required to pay your suppliers and juggle your cash flow actually sink in.

Is the additional time, stress and pressure on yourself and your business really worth it?

If spending $400 saves you a bad debt of $40,000, isn’t it a small amount to pay in the scheme of things?

In the end, you need to decide on a system that works for you and your business.

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Amanda Hoffmann

Amanda Hoffmann is a registered Tax Practitioner / BAS Agent No.18613005, Associate of Finance, Xero, Myob & Quickbooks Proadvisor / Trainer and a Consultant for the Australian Taxation Office.

She says she is more than just a bookkeeper with experience in real estate investing, social media, podcasting, blogging and recently recording monthly youtube episodes

Amanda loves to teach smart, easy online cloud solutions and fix messy bookkeeping. Follow her on social media and say “Hi”