By Samuel McMahon

8 October 2019

When doing business with somebody, one of the first things you should consider, and one of the most important things you should keep under constant review is the amount of financial exposure you are able (or willing) to wear.

This can cover a wide range of business situations. Most commonly, you might be considering letting your premises to a tenant, or providing goods or services on credit to a customer. In these situations, there are important credit management decisions you can make to ensure your interests are better protected.

When entering into business with somebody here are some credit management tips:

Ensure your paperwork is in order and has been fully signed.

Can you answer the following credit management questions:

  • Has the lease, or the credit application, been checked off by lawyers?
  • Have all parties signed it?
  • Have you considered the total credit that is likely to be run up in the ordinary course of business?
  • Have you obtained adequate security for that credit limit? For example, with a lease, it is common to require a security deposit of 3 months’ rent.
  • In provision of goods and services, what kind of a deposit should you be requiring to ensure you are covered in case of a dispute that might arise later?
  • Can you insist on a security interest in property that the directors own?

Have an eagle-eyed credit management strategy.

Even after you have developed a working business relationship with a customer or a tenant, you need to be vigilant to ensure that credit does not spiral out of control.

Keep a close eye on your tenant’s or customer’s credit balance. Have systems in place so you are alerted if the balance increases beyond acceptable levels (which should be related to the amount and nature of security you are holding).

What to do when the credit balance reaches unacceptable levels.

Do not hesitate to insist on changes to your trading relationship if the credit balance reaches unacceptable levels. Consider the following questions when looking at changing things up:

  • Should you evict a tenant who is in arrears and look for a new one?
  • Should you change trading terms to cash on delivery?
  • Should you require a larger deposit as a condition of continuing to trade?

The longer you leave an unacceptable credit balance, the harder it will be to recover credit levels to a manageable balance. Frequently tenants or customers bat off difficult conversations with promises to “trade off” the debt. Maybe this might come true some of the time, but we see plenty of instances where such hopes have proved groundless, and the situation has only worsened.

Any last resorts?

As a last resort, debt collection procedures can be engaged, however these are costly, involve considerable delays, and are seldom 100% effective.

Having uncomfortable conversations early in the piece when problems arise can help to avert greater costs and potentially having to write off a significant debt later on, if your debtor turns out to have insufficient funds to pay your bills.


For any questions or further information, please contact Samuel McMahon or a member of our Commercial Dispute Resolution Team.


The material contained in this publication is meant to be informational only and is not to be construed as legal advice. Tisher Liner FC Law will not be held liable or responsible for any claim, which is made as a result of any person relying upon the information contained in this publication.

Related Articles

View All
Litigation & Dispute Resolution

Playing the man and not the ball: When non-party cost orders are available in Court

When can a party not named as a litigant be responsible for the payment of costs (cost orders) in a legal proceeding...
Read More
Commercial Law / Property & Development / Developments

TLFC Law Triple Finalists in the Lawyers Weekly Australian Law Awards 2019

Celebrating its 19th year, the Australian Law Awards, in partnership with UNSW Law, is the pinnacle of award programs...
Read More
Commercial Contracts & Agreements / Litigation & Dispute Resolution / Not-For-Profits & Charities

Write it in now, or forever hold your peace

All these contracts have one thing in common: you are going to be at a disadvantage if you are relying on any...
Read More
Employment Law / Commercial Law / Litigation & Dispute Resolution

What employers need to know when letting someone go

A staff member may need to be let go because the business can no longer afford them, or perhaps they are just not...
Read More
Employment Law / Litigation & Dispute Resolution / Intellectual Property

Dude, Where’s my Business? High Court Delivers Warning to Employees and Competitors who engage in Dishonest Conduct to Get Ahead in the Game

The case of Ancient Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited [2018]...
Read More
Litigation & Dispute Resolution

The Road to Mediation: the benefits of alternative dispute resolution

For instance, many contracts and agreements include a ‘dispute resolution’ clause The dispute resolution clause...
Read More
Employment Law / Litigation & Dispute Resolution / Construction

Does it Really Matter What You Call Your Employees? The Difference Between a Permanent and a Casual Employee.

The Federal Court found the casual employee worked a regular and continuous pattern of work for more than two years,...
Read More
Property & Development / Litigation & Dispute Resolution

Subpoenas: think twice before pushing the button

In a recent decision of the Supreme Court of Victoria, Brady Queen Pty Ltd and 280 Queen Street Pty Ltd & Anor (No...
Read More
Litigation & Dispute Resolution / Property & Development / Developments

Rules of Thumb for Purchasing a Property

Good advice is only going to benefit you if you take advantage of it This applies whatever your purpose for the...
Read More
Technology and Start Ups / Litigation & Dispute Resolution

High Court Finds Google’s Search Engine has the Capacity to Defame

For many years, Google has claimed that its search engine has no capacity to defame Effectively, Google has argued that...
Read More
Not-for-Profit & Charities / Technology and Start Ups / Adverse Possession

TLFC – Award Finalist for Law Firm of the Year (Medium Category)

Tisher Liner FC are proud to be nominated as an award finalist in the 14th annual Victorian Legal Awards Medium Law...
Read More