Despite 20% of Australian businesses experiencing significant financial loss due to debt defaults in the past year, 70% of businesses don’t insure against defaults.

A survey of 400 chief audit executives in Australia by credit insurer Atradius and the Institute of Internal Auditors has also found only 45% of businesses undertake credit checks on potential customers, and 95% of these checks rely solely on credit agency ratings.

Atradius Australia and NZ MD David Huey says the results show that Australian businesses aren’t taking adequate measures to protect themselves from credit risks and customer insolvency.

“A lot of businesses feel they got though the global financial crisis relatively unscathed and the worst is behind them, so they don’t need to do anything special,” he told insuranceNEWS.com.au.

“The finding that 55% of businesses don’t undertake credit checks at all and take it at faith that customers are who they say they are and will pay is particularly surprising.

“Some rely on payment history, and I have to say to them that your 20-year relationship with a customer stops when they become insolvent.”

Mr Huey says even businesses with credit insurance should complete basic checks when dealing with a major customer, and should also undertake a financial analysis of the client and its clients, because a major insolvency can affect a whole supply chain.

The survey found that 70% of companies with credit risk management strategies in place have a credit management policy, 37% have reduced reliance on a single buyer, 32% request up-front payment and 11% have credit insurance.