Some Simple Credit Checking Tips
Credit Checking is for many a daunting thing, although it does not really need to be. It is easier to credit check a Limited Company than it is a Sole Trader simply from a GDPR point of view and privacy aspect. It can also be said that Sole Traders will seldom run at high value.
Of course, a very simplistic point of view is that you should never offer credit that you cannot afford to lose.
The first thing that often springs to mind is the Credit Report
As these are collated already, you can see payment history, charges, the most recent accounts, the Corporate tree, director details and the assets and liabilities.
It is important to remember that there are different levels of reports available and a number of credit reference agencies, information is quite often historic, credit reference agencies will offer scores and ratings as a guideline.
Trade or Credit References
There is no harm in asking a new customer to provide several supplier details for you to ask about their trading and payment history.
It also is a good idea to track a customers trading history with yourselves, putting red flag in place if they suddenly order much higher values than normal.
You should also consider that they can also influence what you may be told.
Consider also your own due diligence which may include utilising the following:
Prompt Payment Code
Companies who sign up to the Prompt Payment Code commit paying 95% of all supplier invoices within 60 days. If they do not adhere to this they are removed from the register.
You can check some of the companies that have been removed from the Code recently for non-compliance here.
April 2017 saw the government introduce new legislation making the largest companies to report on their payment practices twice a year on public record.
This is great if you actually deal with the bigger businesses, but what if you don’t deal with customers of that size?
Consider checking for Facebook pages, Linkedin Pages, Google News and reviews. Quite often if you see a Company or business name crop up with negative feedback several times close together, you can form a mental opinion. This does not necessarily mean they will be bad payers, but it might be a good indication to proceed with caution.
Finally how about applying for a credit limit with a credit protection provider, if you cannot gain a limit high enough or at all, then there is a reason for that.
‘Pro-forma’ and Load Over Load
If you are approached by a new business, be it not known to you before or recently started trading then you can propose to meet them halfway, mitigating your risk.
Take a deposit, or ask for upfront (aka Proforma) payment with a view if it is to be repeat business moving to a load over load or one bill at a time outstanding before the next order can be fulfilled.
