Customer Credit Risk Monitoring: The Ultimate Guide For B2B Finance Teams

What is customer credit risk monitoring?

Credit risk monitoring is the continuous monitoring of customers for changes in financial health that indicate potential risk to your business. It’s an important component of a creditors risk management strategy as it helps to minimise potential financial loss. By proactively monitoring the creditworthiness of customers, businesses who extend trade credit can identify and manage potential risks before financial losses occur.

Some businesses do this manually, which is time consuming and not truly continuous so prone to red flags not being known. Others use monitoring software like Access Intell, which provides 24/7 monitoring alongside email alerts of changes in risk.

What information is needed to monitor risk

Credit monitoring data should include the most diverse information possible to get the full risk picture. Our software aggregates trusted data via complex third-party integrations from a diverse range of financial and government sources. Important red flag alerts we cover include court actions, adjudications, ATO business tax default reporting, license changes, ASIC updates and insolvencies.

Why you need to know ATO Disclosure of Business Debts tax information

The Australian Taxation Office (ATO) Disclosure of Business Debts legislation provides tax default information that is vital to creditworthiness. The ATO may disclose overdue business tax debt to approved credit reporting bureaus (including Access Intell) if a business meets the following criteria:

• The business has an Australian Business Number (ABN) and is not an excluded entity.
• The business has one or more tax debts and at least $100,000 is overdue by more than 90 days.
• The business is not engaging with the ATO to manage their tax debt.

With over 36,000 business tax debts disclosed in the 2023-24 financial year, businesses can’t afford to miss this critical information.

Visibility of overdue tax debts provides an early warning of possible distress in the defaulting customer, allowing businesses to manage their risk exposure and proactively work with affected customers.

Why customer court action data is important to monitor

Certain types of court actions (particularly non-payment of a debt) are indicators of customer financial distress which is vital for suppliers to know. We compile court action data which appears within hours of the action being listed in court. Most providers offer court judgement data which is only available months and sometimes years after the action first appears in court.

How to continuously monitor building and liquor licenses

Monitoring certain business licenses for changes like building licenses and liquor licenses is crucial for credit risk management. If a customer’s license is suspended or cancelled, you need to know straight away to investigate, halt orders if required and manage any debt exposure. The Access Intell monitoring software easily automates this task and instantly alerts you to changes.

How monitoring can be used by multiple team members for different purposes

Each business has its own unique structure, risk profile and customer base. Keeping track of changes to your customers and where your risk lies can be time consuming. Our customer grouping feature gives you the ability to quickly and easily group your customers to view risk the way it works for you. Uses include:

• An entity group allows a CFO to drill down on business risk to the division or entity level.
• A credit manager can group by customer type, such government bodies, private companies, or not-for-profit.
• A credit manager can group by entity structure, e.g. sole traders, trusts, companies.
• Grouping by ease of collection can assist accounts receivable with where to direct efforts.
• Grouping by industry type can quickly identify customers in the highest risk industries.

Using risk assessment to prioritise accounts receivable collections

Knowing which customers to focus accounts receivable collections efforts on is crucial. Traditional prioritisation methods include by balance, payment performance, aging buckets, or days sales outstanding. Prioritising by risk assessment is another targeted strategy option that focuses on the business’s ability to pay. Our monitoring software does the risk assessment for you, placing your customers into risk bucket categories. By filtering your customers by risk bucket category, you receive an instant priority list of which customers to focus your collections effort.

The benefits of data visualisation for credit risk management

Data visualisation can transform complex credit risk datasets into intuitive, visual formats. It’s a key tool for efficient, effective credit risk management. Our interactive monitoring dashboard (pictured below) places your customers into eight colour-coded categories of overall risk. This snapshot overview instantly shows where the risk lies, including the number of unique entities and the amount outstanding. We use a similar approach for the payment risk and insolvency risk ratings provided for each customer. Colour coding provides the visual representation of risk, and customers can be filtered by these ratings.