Know thy customer’s ability to pay

For a sobering yet schadenfreude-type read try InsolvencyJournal.ie, which has reported that July saw the highest number of firms going into receivership since the beginning of the downturn.

For financial vultures and business opportunists alike, this source of information on distressed assets and upcoming firesales noted that a total of 920 companies went bust between January and July 2010, with construction, services, hospitality and retail accounting for almost three quarters of all insolvencies. The figures marked a 20pc increase on the same period last year. Through July, 280 construction firms went to the wall.

Unfortunately, somebody has to be the messenger of bad news and InsolvencyJournal does a very good job of it. But while we have sympathy for struggling companies, should we do business with them? To help answer that question, knowing the financial stability of your clients would help.

ICC Information, which offers credit checking services, says an analysis of 300 creditors meetings held in the first quarter of 2010 reveals that the companies being wound-up had had outstanding creditors of E500m.

ICC’s Michael Gannon says: “There were early warning signs associated with these companies as they share several common indicators of failure. In 80pc of Q1 failures, ICC advised an abnormal risk of failure and/or advised against extension of credit.

A staggering 40pc had an audit qualification in their accounts while one in six had at least one court judgment against them. It is essential businesses start to assess exactly who they are extending credit to and therefore decrease their chance of incurring bad debt.”

So the information is available (much of it is nearly free on the Companies Registration Office site if you know what to look for) and can be easily checked.

Vision-net.ie, which claims to predict 80pc of business failures before they happen, says 38,000 Irish companies out of 100,000 are in imminent danger of collapse, according to vision-net.ie.

The Dublin-based business intelligence and risk agency said that the 38,000 firms are ‘high-risk’ and showing signs consistent with business failure.

And Creditsafe, which provides company accounts and credit reports, has launched a new feature that allows users to check the creditworthiness of a potential customer so users don’t have to search through a whole report to find relevant information.

Roger Brownlie for Vistage