The Institute of Credit Management (ICM) and business minister Michael Fallon have warned that it is "crazy" to fail to credit check new and existing customers.
Each month, the ICM publishes a new top tip to help safeguard small businesses' cash flow, and at the end of January its latest advice, written in collaboration with Mr Fallon, was released.
In full, the tip states: "Supplying customers without the certainty of getting paid is crazy. Use credit reference information sources to find out all you can - it could save you a bad debt."
The tip is deliberately brief, but the reasons to use credit reference sources when taking on new customers extend beyond simply protecting yourself against clients with a tendency to run up unpaid debts.
You can, for instance, use the information obtained through credit checks in order to decide not just whether to offer credit to your customers, but to set individual account limits.
In this way, prompt payers can be rewarded with higher credit limits, without your level of risk rising unacceptably; and likewise, those who frequently pay late can be made subject to tighter sanctions.
Credit Control need not be puzzling
It is the flexibility of effective credit control - the ability to set individual credit limits and payment terms that maximise your income while minimising your risk - that unlocks its true potential.
Many people overlook this, however; particularly when your main experiences with credit checks in the past have been as a consumer, when it can seem as though they are purely used to approve or reject a loan application.
If your company has yet to make full use of the capabilities of comprehensive credit checking, let the ICM tip serve as your inspiration to begin doing so, and get in touch with us at Safe Collections.
We can help you to understand the best way to approach your credit control process, and can take on as much of the admin as you need, if you're a small business without a dedicated finance team.
Proactive vs. Reactive
We often also speak of proactive and reactive credit control, and how the two can complement one another.
Credit reference checks 9such as securing a credit report from Experian Small Business) are an example of proactive credit control - you take efforts ahead of time to prevent problems later, by adjusting the terms on which you provide credit to the customer.
Reactive credit control, in contrast, includes any actions taken retrospectively to recover unpaid invoices, and this can mean simply reminding the customer to pay you, or extends all the way to court action to force them to pay up.
Just as initial credit checks allow you to tailor your payment terms over a full spectrum of options, the arsenal of different credit control actions available to you provides similar adaptability for the process as a whole.
If this seems overwhelming, Safe Collections are here to help guide you through the credit control landscape, and to find the most appropriate methods for your needs, and for your client base. Contact us today to find out more.
Image by flickr user Images of Money is licensed under CC BY 2.0