When you consider that performing a credit check could cost as little as £2.50, is it really not worth bothering with? Good credit control is all about being in control. If you do not know the financial strength of the company that you are doing business with are you really in control?
It is good practice to make credit enquiries for:
- Any new customer
- An existing customers who’s payment pattern has deteriorated
- An existing customer where your credit exposure is very high (e.g., If as a result of non-payment you are left in financial difficulties)
In the credit vetting process, you cannot afford to rely solely on the apparent size of the organisation. It is normally the larger organisations that fail to pay or fail to pay you on time.
Once you have decided to extend a customer credit terms, then set them a credit limit and notify them of both the limit and the general terms of trade upon which you are prepared to do business with them. Also, ensure that these terms are stated in your contract and on your invoices.
Withhold further credit from any customer who has exceeded his credit limit or whose account is significantly overdue. Alternatively make an arrangement to supply him with, say, £500 of extra work for every £1000 that he pays off his account.
Credit checking is not a “one-off” exercise, it should be continuously monitored and re-evaluated, taking account of both the customer's payment history with your own business and by regularly updating the externally available information.
Jamie O "Making Your Cash Flow"
