The pros and cons of credit reports

25/03/2014

With late payment and bad debts commonplace in the current climate, it’s becoming increasingly important to know your customer before committing to offering credit terms.

There will always be a risk in taking on a new client, but unless you perform a credit check, there’s no knowing whether they’re capable of paying you.

Before deciding to trade with another business these are a few of the important questions you should be asking: Are they paying other suppliers on time? How are they performing financially? Do they have a good credit rating?

Importantly, it offers that peace of mind knowing that customers are likely to pay on time, or preparing you for the fact that you may need to request payment up front.

Our most recent Late Payment Survey, which polled a number of businesses on their experiences with getting paid on time in 2013, highlighted that 54% of companies currently credit check new customers, whereas only 29% credit check existing customers.

With the unbalanced nature of the current economy at the forefront of many people’s minds it is vitally important to credit check not just new customers, but to check them throughout your relationship as things can change overnight.

The pros of completing this credit control procedure are plentiful, namely avoiding bad debt and cash flow issues, recognising when to request full or partial payment up front and knowing who you are talking to by obtaining accurate information of the prospective customer.

The biggest deterrent associated with performing regular credit checks is the cost involved, as it’s an upfront fee that must be paid before you enter agreement with the customer or accept new orders from an existing one.

However this can be overcome. For example, you could absorb the cost of the reports into your pricing structure with the client. You can also work with credit reference agencies to buy credit reports in bulk – so to reduce the cost.

But most importantly, credit reports effectively pay for themselves as the risk of running up late payments and bad debts could cost your business more than by fulfilling this credit control procedure. Therefore, the cost is offset against the impact a bad debt would have on your business’s finances and its cash flow.

For more information about how we can help as a commercial debt collection agency, contact our team today on 0800 9774848 or email collections@hiltonbaird.co.uk.