This may seem obvious, but can your client or customer actually afford to pay your unpaid invoice? If they can afford to pay, will they pay on time (if at all)? The only way to get answers to these important questions is to source credit information, either from a third party provider or direct from Companies House.
If you are new to credit reports Safe Collections have some tips on how you can find the data you need to make an informed credit decision.
Credit checking for fun and profit
Most people have heard of credit checks - even if what you immediately think of is the background check the bank runs when you apply for a credit card, loan or mortgage.
In principle, securing a credit report from Experian on a new customer is the same process, even if you are not lending them money; any goods or services provided upfront, to be paid for later, still represent a line of credit, and a risk to you if the customer fails to pay.
But how do you know who will pay in full and on time, and who is a higher credit risk?
Here are some of the ways you can protect yourself, without necessarily having to pay out to have a credit check conducted by a third-party credit reference agency.
DueDil - short for 'due diligence' - is a new player in the credit reporting market that allows you to search Companies House records, so you can see the directors and owners of a company, their track record as a company director, and most importantly, the financials of the firm.
Basic membership is free and gives you access to a respectable amount of free information including company financials, director details, and a handy list of 'red flag' events, such as records of any court action against your potential client.
Usefully, the site also displays a simple graphs showing how a company's finances have changed over time, giving you an easy to understand method of deciding whether the firm is on the up, or heading into the red.
Without doubt the most useful tool DueDil provide is the ability to look at the current and previous directorships of the directors. This is priceless as a directors previous company dealings will give you a good idea as to how they approach business. A director with numerous profitable long standing companies will likely be more credit worthy than a director with a string of short lived high risk companies in his past.
Be very wary of any director with a history of short lived limited companies, as this is an indicator that the potential customer may be operating in a less than savory fashion.
When it comes to investigating a potential credit customer, do not overlook the internet, as a wealth of information on a company and its directors can often be found with a simple web search. Firstly, check the company name for any record of complaints. Creditors will often take to the web to warn of serial bad debtors.
If this doesn’t return any results, be sure to check the director’s name and the names of any previous companies you identified with your DueDil search. Again, be very cautious of dealing with any business that has unfavourable reviews or remarks especially if these relate to insolvency or non payment. Whilst we don’t generally recommend placing any stock in internet gossip, creditors posting on the internet about unpaid invoices is a red flag.
Finally, don’t forget the address. It is always worth looking up your customer’s premises and seeing what, if anything, you can find. Be especially on guard if the address doesn’t tally with your expectations. Many apparently prestige addresses in central London are actually nothing more than a postbox with thousands of other companies registered at the same address.
Finally, here is a quick checklist of things you should consider as 'red flags' if you find any evidence of them in your searches.
- New companies - any company less than 12 months old should always be considered as high risk.
- County Court Judgments - any current or previous company a director has been involved in that has CCJs should always be considered as high risk.
- Evidence of a director having been involved in a large number of short lived and now-dissolved companies is also high risk.
- Offshore companies, especially those run from tax havens such as the British Virgin Island, Jersey, Guernsey, the Isle on Man, the Seychelles and the like must always be treated as high risk.
- Companies with repeated bad reviews on the internet, especially if these reviews relate to fraud or non payment, must again, always be treated as high risk.
If you do have a new customer that appears high risk, you should do everything in your power to mitigate the risks to your business. Make sure your company keeps a close eye on payment performance and levels of credit and if possible take payment in advance.
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.
Original image Warning by Bernard Dupont has been modified by us and is licensed under CC BY 2.0