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    Credit control & accounts receivables

    The importance of customer credit checks

    Landing a new client is usually great news — but only if you’re certain that the client will be paying their bills. Considering this, credit checks are an essential part of doing business.

    In fact, performing credit checks on all potential new clients and prospects is more than good practise — it’s a fundamental part of ensuring your business has the necessary liquidity and cash flow position you need to continue trading.

    Considering this: how should you best check out the credit rating of your new customers?

    Doing your own credit research

    When you’re taking on a new client, you need to do all of the required customer due diligence. Among other things, this also means checking out the client’s financial health.

    If you perform the right checks on their financial and credit status, you will quickly realize whether they’re a creditworthy company or in a troubling financial state — which is what separates a good prospect from a company you need to refrain from doing business with.

    There are different ways to perform these checks, some of which are:

    • Taking a look at the financial press — find stories that pertain to your potential client. Have they had any M&A activity or profit warnings? And have they had any key personnel changes in their C-suite?
    • Online credit sites — there are plenty of websites like Dun & Bradstreet where you can check out the public credit information of your prospect through their D-U-N-S number.
    • Companies House listings — you can see some of your potential client’s financial history online and find information that’s crucial for your decision-making. Have they been tardy about filing their accounts? Potentially, this may be a signal of money troubles — and there are plenty of other red flags you should consider as well.

    Commission a professional credit check report

    Commissioning a credit check report will help you scratch beneath the surface of your client’s financial history — potentially revealing accounting skeletons from their closet.

    Luckily, providers can offer professional credit check services, giving you all the transaction, commercial, and general financial information about companies that you need to know before getting into business with someone.

    This includes payment data and previous credit ratings, as well as risk categories and a monthly credit guide. With this data in hand, you will have the needed information to decide:

    • If you want to take on this company as a client
    • What kind of credit to offer them if you do, and if any
    • What the overall risk is when it comes to working with this specific organisation

    Communicate with other clients in the same industry

    A lot of businesses face the problem of late payments and the resulting drop in liquidity. However, you don’t necessarily need to get into business with a potential client without appropriate knowledge. In most industries, word about missed invoice dates and slow payments travels fast — so you just need to ask around.

    If you’ve got existing clients working in the same niche or sector as your prospect, don’t be afraid to ask them for an “industry insider” opinion. And if your company has a relationship with any business that’s a supplier for your potential client, be sure to have a sit down with them and hear what they’re like as business partners.

    Having all the numbers is important — but you shouldn’t underestimate practical experience in dealing with the prospect either.

    In most industries, word about missed invoice dates and slow payments travels fast — so you just need to ask around.

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    Track their payment performance

    There are initiatives like the Prompt Payment Code, where businesses may voluntarily become members and give clear targets and guidelines for supplier payments.

    By signing up, companies agree to make supplier payments in a timely manner, meaning:

    • Within the terms that were established at the outset of the contract
    • Without trying to do retroactive changes to payment terms
    • Without implementing unreasonable payment lengths for smaller companies

    Because of this, prospects that are PPC members are far more likely to be creditworthy — and you can be more certain about their general goodwill towards suppliers.

    When it comes to bigger corporate clients, there’s specific “duty to report” legislation that regulates payment practices — even making public reports on payment practices mandatory. For suppliers, that makes it easier to check how fast a bigger corporate prospect is likely to pay you.

    Keep monitoring their payments to you

    Once you’ve performed all of the background research, credit checks, and general due diligence — you may have decided to accept this prospect as your new client. However, don’t think that credit checks on them stop there.

    When you enter into a business relationship, it’s a good idea to:

    • Monitor payment performance — constantly check on the client’s average payment times, and try to get ahead of any trends or issues that may come up and require further action
    • Track their overall debt level — allowing you to better prioritise invoice chasing, and decide when it’s the right time to take action regarding bad debt.
    • Constantly review credit arrangements — update and assess the levels of credit you’re providing to the client, based on their debt levels and payment performance.

    If you use a smart credit-checking solution like Chaser, you will easily be able to verify the financial state of any supplier or client in the UK; making sure that they’re a trustworthy partner before going into business with them.

    Work with the proper clients

    When you’re checking out potential new clients, there are tons of considerations to make — but their overall financial state and creditworthiness should definitely be at the top of your list. Make sure you do your due diligence, do all the necessary research, and choose the right business partners — in the long run, you won’t have issues with your debt level or cash flow.

    Landing a new client is usually great news — but only if you’re certain that the client will be paying their bills. Considering this, credit checks are an essential part of doing business.

    In fact, performing credit checks on all potential new clients and prospects is more than good practise — it’s a fundamental part of ensuring your business has the necessary liquidity and cash flow position you need to continue trading.

    Considering this: how should you best check out the credit rating of your new customers? 

     

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