One of the things suppliers are always advised to do before agreeing to provide any client with goods or services on account is to check their credit rating.
It’s a simple way to increase your own protection against serial defaulters and outright rip-off merchants. If a company or an individual has a good credit score, it means they haven’t got anything in their past that should give you cause for concern about their ability or intention to pay.
So it is that time of year again, businesses are scrambling to get things finished for the big Christmas shut down and, for a few days at least, you can leave your problems in the office - no chasing invoices, no worrying about cash flow, no playing the diplomat with awkward suppliers or clients.
But at the risk of dampening the festive spirits, it is only a temporary respite. Those payments you are struggling to get finalised will still be outstanding come January. But on the other hand, the New Year is always a great time to make a fresh start. So as our Christmas present to you, here is our 12-step guide to what you can do to maximise your chances of getting paid on time in 2019.
If your business doesn’t lay the right groundwork when working with customers, you’re leaving yourself wide open to the risk that you’ll never get paid at all. Time and again, we hear of well-meaning companies putting in in hours of labour - and investing into raw materials - only to find that their customer doesn’t have the means to pay the bill.
According to National Statistics, 4,547 companies entered insolvency in Q2 2017. And over the next few years, we foresee a turbulent time for small companies which could increase this figure significantly. If you don’t yet have full understanding of the companies you're dealing with, and their creditworthiness, your business could be just a few short months from a serious cashflow crisis.
Safe Collections is pleased to offer half-price credit reports from Experian. You pay just £9.99 to check the official credit report for your client; a small fee, but a big weight off your mind.
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.
When it comes to managing your finances in business, knowledge really is power. And this is never more the case than when you are signing agreements to sell your products and services.
As a creditor, the main thing you want to know is whether you are going to be paid fairly and on time. The last thing any business wants to do is get into an arrangement and end up not getting paid.
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?
Whether you're in business on your own, or part of a company, it's essential to protect your income - and one of the greatest areas of risk is when you extend a line of credit to a customer.
Remember, any time you carry out work, or provide goods or services, without taking payment upfront, you effectively become a creditor.
That means you need to think carefully about several different factors, for instance:
We recently wrote about a large fraud case involving at least six connected companies. Each of these companies used false accounts, identity theft and fake documents to achieve large amounts of credit. When the goods arrived, they immediately vanished, but they were never paid for. The suppliers were left out of pocket, and the fraudsters disappeared with the proceeds.
Clearly, this was a very large and highly organised fraud, and 6 companies known to be involved have been liquidated. This kind of operation is unusual, but increasing in prevalence and we suspect it will only get worse as more criminals start to hear about it.
The Insolvency Service has just completed an investigation into a network of fraudulent companies in the UK. The implications of this investigation should act as a cautionary tale for anyone that offers credit to their customers.
In this case, scammers used fake financial accounts to acquire goods on credit with suppliers, using fake details and false documents to elevate credit limits artificially. As the scam progressed, these companies acquired goods they had no intention of paying for and unwary suppliers continued to offer credit, because all of the companies looked profitable on paper.
We recently blogged about Crowdmix, the London-based start-up that went into administration. It’s a sad fact that many businesses fail within their first year. This can’t always be prevented: starting a business is tough. But there are certainly things you can do to avoid disaster.
Profit is important to all businesses, but don’t underestimate the importance of cash flow either.