A survey from the Better Payment Practice Group (BPPG), which aims to improve payment culture in the UK, reveals that 44% of small firms (with fewer than 50 employees) could be too trusting in automatically extending trade credit to new customers.
Small firms should integrate credit-vetting procedures into their standard credit management practices, says the BPPG. This includes checking a new customer’s creditworthiness before commencing trading with them and then closely monitoring them during the early stages of the business relationship, and beyond, to prevent payment problems emerging.
The BPPG suggests the following sources of information for checking creditworthiness:
- Status reports from credit agencies
- Trade references
- Company accounts, which can be found at Companies House
- Register of County Court Judgments
- Insolvency Service
- Bank references
- Friendly visits to the customer
- Local intelligence such as local newspapers or business networking groups
“Extending credit to new customers without thoroughly vetting them exposes businesses to the risk of non-payment,” warns Kate Beddington-Brown, Assistant Director General of the Institute of Credit Management and member of the BPPG. “[We] strongly advise companies to minimise these risks by undertaking research into new customers as part of their standard credit management procedures. Trade credit is a privilege, not an automatic right, and it is vital that companies protect themselves from risk of late payment (or bad debt) by vetting new customers properly before issuing credit.”
For more advice on credit management, visit www.payontime.co.uk.