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What You Should Look For When Giving Business Credit

What You Should Look For When Giving Business Credit

How do you know if a potential customer is credit worthy? Jumping into business with a customer before checking to see if they’ll be able to repay your credit terms can have detrimental effects for business. In this current economic climate making smart financial decisions are crucial to sustaining a healthy cash flow. In this article, I look at just a few of the things you should look for when giving credit to customers.

Credit score

First and foremost, the easiest way to determine whether you should give credit to a customer is to check their credit score. A company credit score will help you to decide how risky it is to lend to a potential customer. There are a number of credit agencies who will provide you with company credit reports and each have their own system for determining a company’s credit score. The higher the score, the more credit worthy and therefore safe it is to give credit to that customer.

Fraudulent behaviour

If the customer has taken part in suspicious or fraudulent activity you may be presented with a warning when you pull credit information on them. If a company’s credit information has fraudulent warnings on it you can either refuse credit or carry out further checks to see if the customer would be eligible for your credit terms. Make sure that the information you pull is from a reliable source such as Companies House, Graydon, or the Edinburgh or London Gazette. That way, you know for certain that any information you are using to inform your business information is the most up-to-date and reliable information out there.

Repayment history

Looking at a potential customer’s repayment history will give you an indicator of how they will pay you. If the business has paid all their repayments on time each month, then it’s likely that they will be able to do the same with your credit should you offer it to them. On the other hand, if a customer is struggling to repay what they owe it may be an indicator that you shouldn’t do business with them.

Court history

While it may be an obvious one it’s important to be cautious when it comes to lending credit to any companies who have been issued CCJs (county court judgements) or had any court action. Usually any court history indicates large disputes between the potential client and historic lenders so in many cases it might be best to give them a wide berth.

In this article we’ve looked at a few things to look out for when you’re deciding whether or not to issue credit to a business. Carrying out thorough credit checks will help you to avoid the risk of late payers and bad debtors.

Interested in learning more? Take a look at our recent article on how to use credit reports to inform your future business decisions.

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