Small businesses urged to conduct checks before signing contracts
7 April, 2025
Business owners are encouraged to carefully assess and conduct due diligence on prospective business partners before entering agreements. Small businesses can protect themselves by verifying financial health, checking for insolvency or identifying outstanding debts.
Essential checks to protect your business before signing agreements
Entering a new business relationship always involves some level of risk, but performing thorough background checks can significantly reduce uncertainty.
Before committing to any contract or financial agreement, small businesses should verify critical information using trusted resources like ABN Lookup, ASIC registers, insolvency notices, credit reporting agencies, and regulatory bodies.
Steps to verify a business's financial health:
| Confirm business registration |
ABN status: Use the ABN Lookup to verify the Australian Business Number (ABN), GST registration, and business details. ASIC registration: Check the ASIC Business Register to confirm company registration, status, and officeholders. |
| Assess insolvency risk |
Insolvency notices: Review the ASIC insolvency notices for any signs of external administration or liquidation. Bankruptcy records: For sole traders or directors, consult the AFSA Bankruptcy Register to check for personal insolvency. |
| Investigate legal judgements | Court records: Search the NSW Online Registry and Commonwealth Courts Portal for any civil cases or judgment debts against the business. |
| Evaluate creditworthiness | Credit reports: Obtain a business credit report from agencies like Equifax or CreditorWatch to assess credit scores and payment histories. |
| Check for secured interests | PPSR search: Use the Personal Property Securities Register to identify any secured debts or encumbrances on the business's assets. |
| Verify business reputation | Online presence: Review the business's website, social media profiles and customer reviews to gauge legitimacy and reputation. |
| Confirm licensing and compliance | Industry licenses: Ensure the business holds necessary licenses or permits relevant to its industry by checking with appropriate regulatory bodies. Check NSW Fair Trading, ASIC, or APRA for relevant licenses. |
Potential red flags to watch out for
- 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.
Seek Professional Advice
If you identify any concerns during your due diligence process, consider consulting with legal or financial professionals. They can provide expert guidance tailored to your specific situation.
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Contact us
If you have questions or need assistance, please contact the NSW Small Business Commission at 1300 795 534 or send an online enquiry.