With late payments an increasing issue among small businesses, the NSW Small Business Commissioner has put together a quick-reference guide for business owners to vet prospective business partners before signing agreements.
The guide comprises seven essential checks to make before entering into a new partnership, plus some potential red flags to watch out for.
These checks are as follows:
1. Confirm business registration
Make sure you’re partnering with an enterprise that is actually registered as a business. You can use the ABN Lookup to verify the Australian Business Number (ABN), GST registration, and business details. Also available is the ASIC Business Register, through which you can confirm company registration, status, and officeholders.
2. Assess insolvency risk
You don’t want to be entering a business relationship with a venture that is insolvent, or at risk of insolvency. To check this, review the ASIC insolvency notices for any signs of external administration or liquidation. If you’re partnering with a sole trader, consult the AFSA Bankruptcy Register instead.
3. Investigate legal judgements
Civil cases or judgement debts against a business are a huge red flag. You can search for these using the NSW Online Registry and Commonwealth Courts Portal.
4. Evaluate creditworthiness
If you’re about to partner with another business, it’s always a good idea to check on debts, credit scores and payment histories. If you have a bit of money to spare, Equifax or CreditorWatch can provide you with another business’ credit report.
5. Check for secured interests
Use the Personal Property Securities Register to identify any secured debts or encumbrances on the business’s assets.
6. Verify business reputation
Take a thorough look around a business’ website, social media profiles, and customer reviews (i.e. on its Google business profile) to see if it has a good reputation.
7. Confirm licensing and compliance
Check what licenses or permits your would-be partner should hold, and whether it actually does hold these. Check the Fair Trading website in your state or territory, ASIC, or APRA for relevant licenses.
Other red flags
If you see any of the below, reconsider partnering with the business:
- Inactive or deregistered business status
- Outstanding court judgments or legal disputes
- Low credit scores or multiple payment defaults
- Significant secured debts or encumbrances
- Negative customer feedback or lack of online presence.
