Granting credit

Credit risk is normally considered in two ways: Firstly the quality of the customer and secondly the spread of customers.

You have the advantage of having a good spread of customers so the quality of the individual customers is less of a concern. However in today's market with the likes of Habitat going bust you should be more prudent in granting credit to anyone.

You should have credit guidelines in place and try to stick to them. The balance is between giving no credit at all and losing customers. Put another way if you gave no credit at all how much custom would you lose and would the profit on this be less than your bad debts.

Without getting too technical, it makes sense to ask for payment upfront on a first order and most people expect and accept this. You should definitely not give credit to the general public as it is a nightmare collecting and they are normally happy to pay upfront.

There is no point in asking for a bank reference. I am also highly suspicious of taking trade references as these can be easily falsified.

There are credit reference agencies (Equifax, Experian, Dun & Bradstreet) which can cost anything between £10-£50 per search depending on the quality of the information. However for small businesses it is worth signing up at Companies House Direct:

http://www.companieshouse.gov.uk/toolsToHelp/chdDirectInfo.shtml

It's very cheap, very quick and very easy to use once you get used to it. It will confirm if you have the correct company name, how long the business has been trading etc.. It will also give you a lot more if you want to pay for it. If you are dealing with a limited company then get a Company Registration number so that you can check them out and make sure that you invoice the correct company name (important if you have to sue them).

You should put together a simple credit granting form, which will include:
Company / Business Name:
Limited Company / partnership / sole trader *choose one
Address:
Company Reg No (if applicable):
Contact Name: (is this a director?)
Tel No:
Email address:
Credit limit required:
Credit Limit granted:
Bank details:

Hope this helps.

David

I forgot to mention credit insurance which might be an option. Costs and availability will depend on a number of factors including sales turnover and bad debt history. It's not something that we offer as a stand alone service but I can point you in the right direction if you are interested.

All the best

OP - if you take Mark's (excellent) advice one stage further, you could simply restrain credit facilities to trade customers or businesses only, with consumers having to pay as you've set up (or even in full up front) which would cut down credit checking costs. (Besides, checking consumers requires prior agreement in writing!)

I've renewed my own facility recently (and another for a client), and there are some deals to be had from the agencies - it depends on the volume, but reports for £4 are not uncommon...