Almost one in fourAustralian companies has a director with a bad personalcredit history -- but the information is often hidden fromview, a study by Australia s leading credit information andbusiness intelligence company Baycorp Advantage hasfound.

Baycorp Advantage found only four per cent ofcredit-active companies has some form of bad creditinformation recorded against them in the company s credithistory.

But 13 per cent of companies have a director withderogatory information entered in their individualcommercial credit history file, and 22 per cent of companieshave directors with a bad personal credit history.

Onecompany which applied for credit had no derogatoryinformation against it -- but its main director had defaultedon debts of more than $600,000, set up new companies andchanged her name five times.

Another company whichappeared to have a clean bill of health had directors whohad failed to pay more than $1.08 million in debts, with 14separate court judgements against them.

Baycorp AdvantageBusiness Information Services general manager Erica Hughessaid many companies did not check far enough into othercompanies credit histories before granting them tradecredit or finance.

"Baycorp Advantage has found that onein three companies which default on a credit payment have adirector who has previously defaulted on a personal debt,"she said.

"Yet many companies fail to check deeply enoughinto a potential customer s credit history to discoverwhether they are a credit risk.

"A company may have noderogatory data on its own credit history, but thedirectors personal records may indicate that the company sofficers have a pattern of not paying their bills.

"Notchecking can have a crippling effect on a small business scash flow if the debt is defaulted on, or late in beingpaid."

Ms Hughes said a director s permission was neededbefore their personal file could be checked.

BaycorpAdvantage undertook the study as part of the launch ofDecisionFlow, a new automated tool which helps businessesmake decisions on granting trade credit.

DecisionFlowdramatically decreases the time a company needs to take toapprove credit for a trade customer, with much greaterdetail.

"Credit managers need to have greater detail attheir fingertips these days, but it needs to be the rightdetail," Ms Hughes said.

"About 40 per cent of all tradecredit applications will fail to show the customer s correctlegal identity.

"It may be something as simple as anincorrect ABN, or as serious as a business which hidesdirectors identities through a web of aliases.

"Thatflows through to trying to collect a debt -- in up to 70 percent of cases where a commercial credit debt is referred forcollection, the legal identity of the debtor is indoubt.

"To be a successful business you need to be on topof both good and bad debtors - nurture the good ones andtrack the bad ones.

"We all know the good debtors becausewe watch the cheques come in -- it s harder to find the timeto track the bad debtors.

"And if you don t track themthey can do more harm to a business than good customers canreverse."

Baycorp Advantage s study found 50 per cent ofAustralian companies did not safeguard themselves throughregular checks of customers on their debt ledgers. Only 19per cent of companies used an alert service to advise themof a potential credit risk.

Trade references were gatheredon about 62 per cent of new customers.

Ms Hughes saidtools like DecisionFlow made it easier to look back into thesecret credit history of a company.

"Often up to 40 percent of a company s assets can be tied up in debts owed toit," she said.

"DecisionFlow helps companies to ensurethose debts are recovered within the terms of the creditagreement.

"It does that by allowing businesses to pulltogether data from all across Baycorp Advantage s commercialand personal credit files to build an accurate picture of apotential customer s credit risk.

"It is the culminationof our years of experience of providing businessintelligence to banks, financial institutions and tradecredit suppliers.

"DecisionFlow helps to ensure that acompany will have less debtors, and credit management staffwill have the time to follow up the debtors it does have toimprove cashflow rather than spend time trying to approve anapplication.

"DecisionFlow is a web-based system thatallows credit managers to quickly approve or reject a tradecredit application.

"It still allows a credit manager topersonally inspect the data and approve or reject anapplication, but it puts in place a series of data filtersto make that job easier and more exact.

"We are alsotrying to make it easy for credit management departments tomake risk decisions by reducing the complexity.

"By makingit easy to understand, credit decisions are consistentacross the business."

ENDS

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