Why credit checking is vital for small businesses
Getting paid is often one of the bugbears for small businesses. On average it takes a small business 71 days to get paid and is usually owed around £37,000 in unrecovered debt. Research from 2016 alone showed that the UK’s small businesses were owed £255bn in late payments.
If your cashflow is good and you can afford to absorb the debt, missing a few invoices, or having to wait a little longer for them to come in might not be a big deal. But depending on how many customers you have, missing out on those payments could mean having to close your business and dissolve your company. So how can you ensure that you’re paid the money you’re owed and minimize the risk you’re opening your business up to?
Credit checking your clients and suppliers can help ensure that you’re receiving regular payments and making informed decisions about who you work with – protecting both you and your business.
Find out more about the suppliers you trade with
Using a credit checking tool will help you find out who you’re doing business with. You can check on the credit status of any company in the UK and find out their credit score, as well as their financial history and their ability to pay in the future.
Using this information, you’ll be able to make informed decisions about who to trade with, as well as their reliability to pay on time – because nobody likes chasing late payers.
Minimizing the risk of non-payment
If you have a small client base, not getting paid isn’t an option. Running a credit check on your suppliers and clients can help you decide what terms to set them up with.
Learning their payment performance history, you’ll be able to decide whether they are reliable enough to pay an invoice in 30, 60 or 90 days, or whether you should ask them for the total amount upfront before you exchange goods or services.
Monitoring the financial health of your current suppliers
Running a business is hard and knowing which suppliers you can rely on is often a case of trial and error when you first start trading. Monitoring the credit of your existing customers can help you make better decisions about how any financial changes at their end will affect your business before it’s too late.
If you see that something has changed you might decide that you need to take action because they are more of a risk to your business and feel the need to adjust their payment terms or your credit offering to them. Plus, companies that monitor credit are 36% less likely to fail within their first 4 years.
Find out more about credit checking and how we can help get your invoices paid quicker here.