Handling business affairs in the current financial climate is already difficult without having to anticipate credit problems from those you deal with. Not being paid or being paid late when you’ve provided goods or services can be damaging to your business because your cash flow is interrupted. This may prevent you from paying your own suppliers or bills, and could lead to severe financial difficulties.
Consequently, you should have a credit risk management strategy which minimises the chances of this occurring. Before starting up a business relationship with a new customer, you should consider carrying out a business credit check in order to establish whether there are any existing financial issues with that company. This will give you an idea whether or not they will be able to pay their bills on time (or at all), and allow you to decide whether to do business with them, or whether you should have particular terms in place.
You may also wish to consider carrying out a credit check on existing customers too. These days, companies of all sizes and backgrounds are experiencing problems, so just because a customer has previously consistently paid on time doesn’t mean they will carry on doing so in the future. Consider conducting regular credit checks as part of your risk management strategy.
Should the worst happen, you should also have a credit insurance policy in place to protect you when a customer doesn’t pay up. However, prevention is better than cure, so using credit checks to avoid getting into this position is always wise.
