You could be putting your business at risk by failing to carry out routine credit checks before extending a line of credit to customers.
Any time you conduct work on behalf of a client, or supply goods to them without demanding payment upfront, you are effectively creating a line of credit - and increasing the total degree of risk to which your own company is exposed.
It doesn't take too many non-paying customers for your cashflow to suddenly become severely disrupted, so it's wise to make sure you're double-checking the creditworthiness of your potential clients, before you agree to do business with them.
Doing so is not unusual in day-to-day business, nor should you view it as something that's likely to cause offence - if your would-be customer reacts particularly strongly to the news that you plan to check their credit rating, alarm bells should be ringing already.
The scale of credit-check blindness
Without carrying out a credit check, you simply cannot be certain of the financial health of a company, regardless of how it may look from the outside.
Despite this, a survey conducted in 2011 by Experian found 71% of small businesses in the UK do not credit-check their customers before carrying out work for them.
It's not only about whether the customer is likely to pay you on time; a poor credit rating can affect their ability to access finance from other sources, and may also make it harder for them to attract customers.
All of these means that, if they suffer any kind of cashflow interruption of their own, they might not be well-placed to deal with it, and their problem could soon become yours.
Opening your business eyes
The results of a credit check can be eye-opening, both in terms of making you aware of how healthy your customer's finances are, and often in the more surprising sense of totally contradicting your expectations.
Simon Streat, managing director of Experian's UK SME business, said of the 2011 survey: "Simply taking the steps to check the credit score of firms before doing business with them is straightforward and affordable, and it could make all the difference."
Content continues below
Cash flow is king. Profit is sanity. Turnover is vanity. Cash flow is the lifeblood of every business and ensuring it flows freely is essential. Read a sample of our free guide to credit control…
Britain's small to medium-sized enterprises (SMEs) contribute some 99.9% to the private sector - but are facing losses of around £3.7 billion due to poor credit control and debt collection processes.…
The total value of overdue payments owed to UK small businesses has rocketed by an astonishing £1bn in just six months, according to a new report. The survey by small business financiers Liberis…
It's good to know that, when a dodgy dealer makes off with client money and there's no record of where it's gone, they will face prosecution to the fullest extent of the law. New figures from the…
But how do you go about credit-checking clients if you've never done it before? That's where Experian SME (Formerly Riskdisk) can help.
Experian SME provide credit checking services and company credit ratings for nearly 20,000 UK businesses, with repeat customers who come back year after year to safeguard their long-term finances.
Experian SME's fourfold quality commitment
Experian SME's credit ratings offer:
- Quality - Accurate information sourced from 100,000 daily data updates.
- Value - Flexible pricing packages designed to suit any scale of business.
- Speed - Fast and easy credit-check services that won't delay your business.
- Service - Personal assistance, live support, and real people - not machines.
Experian SME can also alert you to any customers who are likely to leave payment of their invoices until the due date has already passed, with late payment statistics built from 6,500 UK company ledgers and 20 million monthly transactions, and encompassing almost two million businesses currently trading in the UK.
Together with the company's credit report, this can help you to identify those who might need extra chasing in order to settle their debts - and could save you from losing out on an invoiced amount, or incurring administrative and legal costs in chasing the client for payment.
If you would like a free, no obligation credit report on any UK registered company just contact us and we will be happy to help.
Over 150 Years Of Industry Experience
Our modest but highly skilled team has a combined total of over 150 years of experience in commercial credit management and B2B debt collection. From independent IT contractors to major film and TV publishers, Safe Collections has the knowledge and experience you need to get paid quickly and cost effectively.