Credit checking a potential company is an integral part of your credit management policy. Ultimately you are able to from your investigation determine the risk that your company will undertake be offering the potential customer credit.
Considerations should include:
• What is the company formation and are they protected by limited liability?
• What are the directors other current appointments?
• What are the directors’ previous appointments?
• Have the directors been involved with companies that have gone into liquidation, administration or been dissolved?
• Does the director have a non trading company sitting in the background?
• Is the trading address cited the true trading address?
• Is the directors cited domestic residence correct and do they appear on the electoral roll.
• Does the company have any CCJ’s
• Are their any mortgage charges assigned?
• Who are the company shareholders?
• If the company shareholder is a company, do I need to investigate that also?
• Does the director have other appointments that might be cited at a different address and therefore not immediately apparent on your initial investigation?
• What is the current credit score for that customer?
• What is the suggested current credit value for that customer?
• What is the trading status of the customer?
• What financial information are you able to ascertain?
• Has there been a company name change previously?
• If there has been, does this relate to a pre packaged administration?
• Has there been a winding up order previously on this company?
• How erratic has their credit rating been?
Once you have taken into consideration the above information you are able to assess the credit worthiness of your potential customer. Based on your findings you are then able to either:
• Decline from the potential custom
• Request payment in advance or on delivery
• Offer unsecured credit and run the risk within payment terms that are acceptable.
• Offer credit with a personal guarantee and reduce the risk
• Do nothing and hope for the best!
Remember the credit environment has changed globally in the last four years. Personal guarantee’s are no longer a dirty word and are in some industries considered to be standard practise. Therefore as a business you can plan a credit management policy that suits your business.
If you are offering credit to a customer, it will remain a liability until the subsequent invoices are settled. Consequently an order is only a sale when it’s paid for, until then it’s a potential debt!
If you ask the bank for a loan, you will be credit checked and you have to sign an agreement. This is because banks are financial institutions that understand the risk of lending, particularly now!
Would you lend money to someone who you didn’t know? If the answer is “yes”, then perhaps you’d lend me some! If the answer is “no” then why are you offering credit to a customer that you have no knowledge of, with the hope that they will eventually pay?
So there is the argument that it’s better to have the custom as opposed to being exceptionally cautious and having no business! But if the customers don’t settle their bills, then do you ultimately have a business in the long term anyway?
Furthermore if your potential customer is a large corporation they may dictate the terms of credit that you offer based on the fact that you won’t decline their offer of business. But a credit check will assist you in making a informed decision and determine if the potential risk is worth taking.
Forewarned is Forearmed, and when taking on the risk of credit it is essential.
The ICE PACC will automatically perform a credit check for all of your potential customers and then cite the potential risk of offering credit prior to engaging their custom. This is a small aspect of the service that you receive from subscribing to this unique and comprehensive credit management tool.
Contact us directly at info@icepacc.com
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