If you decide to give credit to a customer, you should try to get as much security as you can, in case the customer becomes insolvent.
When dealing with a company, you should at least get a personal guarantee from directors and shareholders.
If you are supplying goods, you should get a purchase money security interest (“PMSI”), which should be registered on the Personal Property Securities Register (“PPSR”) before you supply. If you have a PMSI, you will be able to repossess goods that are not paid for and are still in the customer’s possession. If the customer has already on-sold the goods, you may be able to claim the proceeds of the sale ahead of other creditors.
If possible, you should also try to get a general security over all of your customer’s personal property, which will include all business assets. This also needs to be registered on the PPSR. Customers are often reluctant to give a general security, especially if their bank already has a general security. Don’t be surprised if your customer refuses.
The guarantee and security interests should be included in your terms of trade, and signed by your customer and the guarantors (if any).
Having security does not ensure that you will get paid if your customer becomes insolvent, but it may increase your chances of getting paid.
If you have doubts about whether your customer will pay you, or whether the security is of any value, it is best to refuse to give credit. You should ask for payment in advance.