Guides

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?

Unless you have the luxury of an in-house credit controller - which is something even some larger firms can't afford - you might be tempted to take a head-in-the-sand approach to chasing overdue invoices, and simply try to pretend they never happen.

Sadly they do happen, even from trusted long-term customers, and that can lead in turn to some soul-searching: Why didn't they pay? Did I do something wrong? Is there no trust in business any more?

Sometimes, businesses fail.  If a failed company is a customer of yours it can be an expensive and potentially disastrous situation.

In most cases their will be little you can do, except wait and see if any money is left for creditors when the affairs of the company are formally finalised.

At some point in the life of every business they will face difficulties in getting a client to settle an invoice.

Now you are faced with the very real prospect that this unpaid invoice may become a bad debt and bad debts can cripple an otherwise profitable venture.