Credit and Finance, News and Insight, Hints and tips
Why should you be credit checking your customers and suppliers?
Posted on by Cindy Yip
Estimated read time: 5 mins
Across the UK, SMEs are now owed at least £67.4 billion in unpaid invoices, an 8 per cent increase (on the same figure in 2014). The true number could be a lot higher as it doesn’t take into account those companies that don’t submit detailed annual accounts. The average length of time SMEs have to wait for invoices to be paid currently stands at 72 days, that’s up 62 days from recession figures of 2009 (1).
Trade payment is the lifeline of the B2B world, with an ever growing trend of late payments and unpaid invoices. Companies should be taking actions and greater measures to check whom they’re going into business with as a first line of defence. Delays in payments can cause significant problems affecting the overall performance of your company. Besides from the average two weeks that SMEs spend chasing late payments, outstanding payments affect your cash flow and therefore your ability to budget ahead (2).
Here are some reasons of why you should use Business Credit Checks to protect your company and reduce its exposure to risk:
1. Vet potential customers
You can search for any company in the UK or abroad in our system; if it isn’t available then we’ll endeavour to source this for you. Vetting them will allow you to see information such as when they incorporated their financial books, level of credit risk, their ownership and much more. This will determine the creditworthiness of anyone you do business with to provide you with the confidence needed in taking your business forward and deciding whether to supply goods and offer credit.
2. Learn of their history and possible ability to pay in the future
A credit report will indicate the financial history of a company through the accounts it has filed, adverse information along with history of their directors and previously associated companies. Anyone you enter into business with can sell you the world, they could be a supplier telling you how financially stable they are or a customer telling how timely they are with payments. Getting a business credit report is the quickest and most reliable way to learn about their financial history in an instant. Their credit score can indicate whether you should go into business with them and the risk this imposes on your business to make a fully informed decision.
3. Monitor existing customers and suppliers
If you’re working with more than a few customers and suppliers, it gets difficult to keep an eye on so many companies at once. Monitoring their credit activity such as rating and limit can give you peace of mind when entering into business relationships. Adding your customers to a monitoring list will notify you of any changes in their financial status so you can be prepared rather than let it abruptly affect your operations. Monitoring your customers will help you decide their risk if it changes at any point and whether you need to adjust your credit offering to them. This means rather than constantly checking their reports, you’ll be automatically notified if anything in their status changes so that you can act proactively rather than be reactive.
4. Are the decision makers who they say they are?
When entering into business, you’re doing business and negotiating with the people within that company. You need to be sure that they are who they say they are within the company and what their past as an individual looks like. Have they been associated with companies in the past that have gone into bankruptcy? Are they associated with any other companies where there could be conflict of interest? A credit report will tell you a lot of information about the decision makers to clarify claims they’ve made or help you make decisions that could potentially affect you and your company.
5. Learn their payment patterns
Our credit reports provide payment performance data from thousands of sales ledger which indicates the number of days that a company takes to pay its invoices. The data is collated from sales ledgers of companies that have participated and is updated on a regular basis to show the most up to date payment behaviour. It will show the sizes of account that they’ve owed invoices to, historic data of the number of days they’ve taken to pay and how this compares to the industry average with indication of whether this has improved or worsened over time. This will give you an idea of how their payments will be like as a customer and whether they will pay on time.
The challenges of operating a business on a day to day basis is hard enough but running credit reports on vendors, partners or competitors can making running your business easier and more profitable. They’re the best way to assist you in obtaining information on your next potential biggest customer or bad debt aiding you in making sound financial decisions.
Source: 1 abfa