Why Businesses Should Credit Check New Customers

why-credit-check-new-customers

In many businesses it is common practice to extend credit to customers. If your business provides products or services and receives payment at a later date, you are effectively loaning money to your customers, and if I were loaning money to people or businesses I didn’t know I would want to find out about their credit worthiness first.

There are many ways to learn more about the credit history of new customers to protect you from bad debts. Let’s look at some of the most reliable now…

Check Credit Report

It is easy and affordable to get a complete credit history on new or prospective clients through a comprehensive credit report. These credit reports include…

  • Past payment data
  • Bankruptcy records
  • Any lawsuits, liens and court judgments against a company
  • An overall risk rating that predicts how likely a customer is to pay their bills

Depending on the customer relationship or type you may want to run a credit check on an individual, a business or both.

Through our alliance with Veda Advantage Ltd we provide fast, affordable and complete credit checks on all companies and individuals.

Request A Credit Report Now

Credit References

Another (more time-consuming) way to check your new customers credit worthiness is to contact their credit references. Of course this is less reliable as the customer will provide their own references, but if you can gather a list of suppliers or other businesses they buy from you can make few quick phone calls to see if the owe any money and pay their invoices on time.

Public Financial Statements

When dealing with large company clients that are publically listed you will be able to access their financial statements and get a clear picture of their ability to pay. Although one caveat to this is that just because they may have the funds to pay, it doesn’t always mean they are good payers who always settle invoices on time.

This is another reason why Credit Reports are so important because it shows you a complete history of their past payments to creditors.

Credit Insurance

One of the best ways to protect your company from overdue accounts and bad debts is to take out credit insurance. Credit insurance covers you for any outstanding money owed to you by trade customers. If your customers do not pay, your policy will reimburse you in full.

This is perfect because even if a company goes bankrupt, goes into liquidation, won’t pay or skips town, your company cash flow won’t be affected and business can carry on as usual.

Also when you take out a credit insurance policy the policy provider will do in-depth credit research into your new and existing customers to protect their own interests. Many even provide ongoing reports on your customers so you always have a clear picture of your customer’s current financial position.

Learn more about Credit Insurance here.

More Quick Tips For Avoiding Bad Debts:

Check how long a client has been in business. You want to be very careful offering credit to new businesses

  • Start of with a low credit limit and short invoicing terms. As the client shows a regular pattern of paying invoices on time you can increase and extend your credit terms
  • Be wary of customers who undertake aggressive sales and price cutting strategies as they may not be able to pay their bills if they are offering their products too cheap
  • Always stay up to date with industry and economic trends. If the economy is slowing down you may want to be a little stricter on your credit terms

To find out more about our credit reports and credit insurance click here

 

Written by Richard Thompson

Richard Thompson is the Managing Director and owner of JMA Credit Control and has over 25 years’ of trusted experience. Richard has a wealth of knowledge in Credit Management and Debt Recovery ensuring client’s recovery bad debt quickly and cost effectively.

Leave a Reply

Your email address will not be published. Required fields are marked *