If you’re a start-up company, SME, or if you’re new to credit checking and don’t quite know who to work with, we have created 5 top tips on how to ascertain a potential customers creditworthiness. The best way to avoid slow payments and/or bad debt is to check out the creditworthiness of prospective customers from the beginning, and not just the business; the directors also. By reviewing a free credit report from Creditsafe you can get instant online access to a business’ information, including their financials and credit rating. There are some simple steps to take when deciding whether a customer should be given access to credit or goods or services from your company, and here’s how to do that:
- Establish a pro-forma set of questions and filters to use when qualifying customers and deciding who to work with.
These could include the following:
a) Does the company have an up-to-date website and contact details? There are more than 2 billion people using the internet every day, and most companies aim to capitalise on the on-line market. Also, if their telephone line isn’t working, one could question how they do business. If they don’t have an up-to-date website and contact details, they may not be a valid company. No business can function without communication devices. Don’t jump straight to conclusions though, they may have a valid reason so really do your research.
b) Is the head office a real building? Thanks to Google Maps it’s easy to check! We have a link to Google maps on the Creditsafe database which shows our customers exactly where a business address is. Yes, more and more start-up companies are breaking into industries, and some may have smaller or even home offices. However if you’re dealing with a well-established company with a turnover in the millions, such as a publishing company for example, they’re probably not going to be based in a Portakabin. It’s always best to check.
c) Are its director’s good business prospects or serial business failures? Directors of limited companies submit their information to Companies House when their business first registers, it is then filed and we have access to that information through the Creditsafe system. Due to Companies House policy, director’s information is very specific; therefore if a director changes their name slightly, or adds in a middle name for example, they can show up on the system as someone completely different. To counteract this, Creditsafe introduced a ‘Possible Matches’ section on the Creditsafe system, which produces matches that show the customer if a director is connected to any different information worldwide on the system, such as same business address, same birthday, etc. Check them all. A director may be hiding a whole history of failed businesses behind a slight change of information, so be thorough in your searches.
- Ensure that everyone in your company is aware of the agreed criteria.
There should be no exceptions to the rules when deciding whether to extend credit for goods to a prospect. Team work is key here and communication crucial, as if one half of the team falls down, mistakes could be made. If someone flags a problem with a prospect you are about to do business with, it needs to be communicated with the rest of the team. Make sure your finance and your sales team have a close relationship and communicate regularly, otherwise you may be giving out credit/services to someone who isn’t creditworthy and safe to do business with. The policy should be communicated throughout the business and made sure it is clear to all teams.
- Use your free credit report to do an online check on payment behaviour, credit limits and financials.
This is what we’re here for. For example, at Creditsafe we offer over 120 million company reports worldwide. We’re also the most used supplier of credit and business data in the world, with over 80,000 customers. By using a company such as Creditsafe, we do all the hard work for you. You could access credit and business information yourself for a credit score check; however it then takes time and understanding to get through the reports. By using Creditsafe, you get an ordered online report filled with relevant information plus statistical insight. You also have instant access to a scoring model which predicts almost 70% of all insolvencies up to 12 months in advance. This ensures that you are made aware of potential risks to your business in plenty of time for you can take the right steps to protect your company. We show you all the financials, payment history, CCJ information, credit limits and the Days Beyond Terms (DBT) it takes a company to pay- all this in one place, instantly available online.
- Use a credit referencing agency plus Internet searches.
Uncover media stories about a specific company (positive as well as negative). The first thing many people do when trying to find information is to turn to the internet. The usual things will come up – website, contact details, etc. however you can also search articles and news about the company to see how they are portrayed in the press, if they’re mixed up in any legal cases or just general testimonials for the company. The Creditsafe system also has a company media search section called Media Solutions, where a customer can search a company and everything that has been published in the media about them recently will come up in the results. A company will 100% tell you how great they are, that’s how they get business; however always check that everyone else thinks the same.
- Ask for references and make sure to follow them up.
Personal recommendations are invaluable. When you ask for recommendations, ask the company directly, search the internet, and search their website; search everything. However, here’s a tip… if the company in question give you a name of someone who will personally recommend them, check them out on LinkedIn. They may just be a friend or a neighbour pretending to be a satisfied customer.