Managing Risks in Hiring Equipment While Giving Trade Credit to Small Business Owners
For businesses that hire equipment out to small business owners, extending trade credit can be an effective way to increase sales and build customer loyalty. However, it also comes with inherent risks that must be managed to ensure safe revenues. The risks of giving trade credit include late payments, defaults, and even fraud. The good news is that because the cost of finance is increasing, trade credit applications are also increasing. But how do you know who is trade-worthy, and how do you get to safe revenues faster?
Importance of trade credit for small business owners
Trade credit is a vital source of funding for many small business owners. It allows them to obtain goods and services without immediate payment, providing a short-term cash flow boost. Trade credit also helps small business owners build relationships with suppliers, which can lead to better pricing and more favourable terms in the future.
The impact of the increasing cost of finance on small business owners
The increasing cost of finance is a significant concern for small business owners, particularly those with limited access to traditional financing options. Trade credit can be a cost-effective way to obtain credit, as the interest rates are often lower than those of other financing options. As a result, more small business owners are turning to trade credit to meet their funding needs, making it essential for companies that hire equipment out to manage the associated risks effectively.
If you hire equipment to small business …. you know it’s a risky business
Risk 1: Delayed payments
Small business owners may experience cash flow issues, resulting in delayed payments. This can be particularly problematic for companies that hire out equipment, as it can affect their ability to pay their own bills and invest in their own businesses. Delays in payments can also affect the profitability of the hiring company, as they may have to pay interest on any loans or lines of credit they have taken out to finance the equipment.
Risk 2: Default on payments
Small business owners may also default on payments, which can lead to significant financial losses for the company that hired out the equipment. In such cases, the hiring company may be forced to take legal action to recover their losses. This can be a time-consuming and costly process. There’s also no guarantee that the hiring company will recover all of their losses.
Risk 3: Identity fraud
And then we come to those unsavoury characters who use false or stolen identities to obtain equipment, leading to significant financial losses for the hiring company. This can be particularly problematic if the equipment is not recovered or if the small business owner cannot be located.
Risk 4: False documentation
Small business owners may provide false documentation, such as financial statements or data on the application to obtain equipment. This can lead to significant financial losses for the hiring company, as they may not have accurate information about the small business owner’s financial situation.
Risk 5. Inaccurate financial statements
Small business owners may provide inaccurate financial statements, either intentionally or unintentionally, when applying for trade credit. This can lead to the hiring company extending credit to a business that is not financially stable, increasing the risk of default or delayed payments.
How do you ensure safe revenues?
1. Review regularly
Establishing credit policies
To ensure safe revenues, companies that hire equipment out to small business owners must establish credit policies tailored to their specific needs. These policies should include clear guidelines for credit checks, credit limits, payment terms, time in business and procedures for handling delinquent accounts. By establishing these policies, companies can reduce the risk of extending credit to high-risk customers and increase their chances of timely payments.
Monitoring customer accounts
Another key strategy for ensuring safe revenues is to monitor customer accounts regularly. This can include tracking payment histories, reviewing credit reports, and conducting periodic credit checks. By monitoring customer accounts, companies can quickly identify potential risks and take steps to mitigate them, such as adjusting credit limits or changing payment terms.
Regularly reviewing credit terms
Companies should also regularly review their credit terms to ensure they are competitive and appropriate for their target market. This can include adjusting interest rates, offering promotional discounts, or extending credit to customers with a proven track record of timely payments.
2. Install digital anti-fraud measures immediately.
Implementing fraud detection software
Companies can implement fraud detection software to identify and prevent fraudulent activity. This software can monitor customer activity, flag suspicious transactions, and alert company personnel to potential fraud. By using fraud detection software, companies can reduce the risk of financial losses and protect their reputation.
Verifying business and personal information
To further mitigate the risk of fraud, companies can verify business and personal information provided by customers during the credit application process. This can include verifying business registration documents, checking personal identification, and conducting background checks on key personnel.
Conducting background checks
Background checks can be important when extending credit to small business owners with limited financial histories. In addition, companies can conduct background checks to verify a business owner’s identity, check for criminal records or bankruptcies, and evaluate past business ventures.
3. Use Auto-Decisioning – it’s better, safer and faster – here’s why:
Reduces human error
Human error can be a significant risk when extending credit to small business owners. By using AI to automate credit decisions, companies can reduce the risk of errors and improve the accuracy of credit decisions. This can help to ensure that credit is extended only to customers who are likely to pay on time and minimise the risk of default.
Increases accuracy of credit decisions
Powerful AI can analyse vast amounts of data to make more accurate credit decisions. By using machine learning algorithms, companies can analyse customer data, evaluate credit scores and financial statements, and make data-driven decisions about whether to extend credit. This can help to ensure that credit is extended only to customers who are likely to pay on time and increase the overall accuracy of credit decisions.
Streamlines credit application process
Companies can use powerful AI to automate the credit application process, making it faster and more efficient. By automating the process, companies can reduce the risk of human error and streamline the review process, ensuring that applications are reviewed and processed quickly.
Why Equipment Hiring Companies are turning to 1Centre to revolutionise their trade-credit customer onboarding
Managing credit risk is essential to your success as a company that hires out equipment. A powerful solution that can revolutionise your trade credit process is the 1Centre Trade Customer Management Platform.
The 1Centre platform is a cloud-based trade-credit automation system that offers a range of features to streamline your operations, reduce costs, and enhance customer satisfaction. Its features include credit application processing, credit scoring, risk assessment, ongoing credit management, and document, supplier and customer management tools.
1. Flexible structures
One key feature of the platform is 1Account, which allows you to customise the look and feel of your onboarding process. Options include corporate colours, logos, customisable emails, and due diligence questions or extra checks based on entity type or value. You can also use 1Account to set up reporting and manage your facilities, teams, and hierarchies.
2. Safe as houses
Another platform feature is 1CAH (Approval Hierarchy), which enables you to define approval hierarchies and workflows based on your specific business requirements. This feature allows you to set up multiple approval stages, assign approval rights to particular users, and define approval limits. By streamlining your approval process, you can reduce delays and increase efficiency.
The platform also includes 1CAD (Auto Decisioning), which automates the credit decision-making process using data analytics and machine learning algorithms to evaluate credit applications. The platform’s AI-driven decision engine can instantly approve, decline, or refer applications for further review, providing your business with a faster, more accurate, and compliant credit decision-making process. In addition, anti-Fraud ID Verification and AML Checks are available in-platform to ensure you only onboard genuine and trustworthy customers.
3. Customer friendly
What sets 1Centre apart from industry incumbents is our user-friendly interface, intuitive design, and advanced security features that ensure sensitive information is kept safe and secure. As a result, our platform is trusted by leading organisations in New Zealand and Australia, such as Mitre 10 New Zealand, CSR Group, and BidFood New Zealand & Australia, to simplify their trade credit process and boost revenue from their trade customers.
4. Streamlined and efficient
Implementing the 1Centre Trade Customer Management Platform allows you to streamline your trade credit process, achieve greater efficiency, and improve customer satisfaction rates. Our bureaux-agnostic platform offers faster turnaround times, better processes, and added functionality through great technology built for scale. Our platform is ready to go with no build costs and is more cost-effective each month.
Overall, the 1Centre Trade Customer Management Platform offers the quickest and most efficient path to achieving a comprehensive and compliant ‘yes,’ resulting in increased revenue and high customer satisfaction rates with the highest conversion rates. We would be happy to discuss this solution further and demonstrate how it can help your business grow.
Want to take the next step?
We’re offering a free business plan that outlines your internal proposal to adopt a Trade-Credit Customer Onboarding Platform. Click through to the article below to access.