Credit monitoring conundrums – The importance of credit checking for small businesses

David Haxton discusses the importance of detailed credit checking for small businesses.

Every business owner knows credit checking is important both for personal peace of mind and running their business. Understanding it is key to ensuring that a business partners with trusted companies that will not let them down when an invoice enters their mail room. However, despite the business critical nature of credit scores, more than 30 percent of UK consumers admit to not checking their personal credit report and one in three have been refused credit, according to recent research by uSwitch.

That said, unlike some customers, most businesses take the issue of credit checking very seriously, as it has the potential to adversely impact every part of their day-to-day operations. Every business wants to attract new customers and build on existing relationships. But, doing business with someone new is not without its risks. One major question business credit checking helps answer is: How do I know that my invoice will be paid and in the right time frame?

Having the ability to trust new partners, through detailed credit checking, and building an understanding of a potential customer’s or supplier’s financial information, means that businesses can set the right terms for how they do business. Some businesses offer this service within a bundle package, like we do with our Frillo+ customers, for example, meaning that for very little cost, companies can check their customers or suppliers credit ratings. This can also be utilised to help set the right payment options for a business and its customers or suppliers, ensuring that they can afford the products or services both now and in the future, helping to avoid any unpleasant surprises.

Credit scores can also affect a business’s ability to target larger organisations, too. Big businesses will check a business’s credit rating using crediting checking platforms, such as, to see who can or should tender for their biggest contracts. Ensuring that a business understands the key criteria contained against its credit score is therefore going to have an impact on their ability to take on the big guys in any given sector. With recently released government figures highlighting there were 5.2 million SMEs in the UK in 2014, accounting for over 99 per cent of all business; increasing their competitiveness would have extremely positive implications for the UK economy.

The same rules apply for supplier contracts. Part of the due diligence process of penning a new contract or partnership is making sure that the company will be around to deliver on its promise. Certain credit checking sites offer the information, but do not say whether the customer is creditworthy – the most vital part in most senses. Luckily, there are sites and tools out there that will so it’s important to make sure you choose the right credit scoring company to suit your business’s needs.

Getting to grips with a business credit score has the potential to save big money. Loans are often priced on credit profiles and a poor credit rating could be costing a business thousands of pounds a year if it is not properly managed. This can affect everything from your cash flow to your talent retention; if you can’t adequately remunerate your staff then there’s a strong chance you’ll lose the best talent you have. Equally, if your sales teams have access to credit scoring before following up with a new business lead it can also save time finding out the businesses that are not able to  afford your products or services, allowing you to concentrate on those that can, freeing up time across your entire sales force.

It’s without doubt that the information contained within credit check reports is vital, but it can also be extremely confusing, even for the most financially articulate employees. Understanding it is paramount to a business’s long-term success. Those that do will be able to ensure they are buying from stable businesses and selling to sustainable customers who are able to pay, giving their business the financial security to progress to the next level.

Further reading on credit checks

Related Topics

SME finance

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