Who do you use to credit check new customers?

[HFE Signs]

Hi Guys,

Historically most of our customers pay by card at point of order, we have an increasing number of people asking for credit accounts, I'm looking to sign up to a credit checking system and wondered if anyone can recommend?

Thanks,

 

[JEREMY HAWKE]

Hi Guys,

Historically most of our customers pay by card at point of order, we have an increasing number of people asking for credit accounts, I'm looking to sign up to a credit checking system and wondered if anyone can recommend?

Thanks,

It always bothers me why they are asking
I come to the conclusion they have no money
There is someone on here that was doing each check for about £10 depending on how many your doing a month this could be a cheaper option

 

[Mark T Jones]

I use CoCredo - But in reality there isn't really a 'best'. I learned that when speaking with a big accountancy firm who had spent 3 years assessing all of the systems - and concluded they were much of a muchness. (Actually, Risk Disk came out top, but by a tiny margin)

More important than the system is how you use it - which needs some education and training.

As @JEREMY HAWKE has suggested, before you go down the route of offering credit, you need to be absolutely clear on why, when and how you offer it. And you need a robust collections policy.

 

[HFE Signs]

It always bothers me why they are asking
I come to the conclusion they have no money
There is someone on here that was doing each check for about £10 depending on how many your doing a month this could be a cheaper option

It isn't about affordability - some of the larger companies prefer to use their purchasing systems and are much more likely to spend more if the process works for their systems. If we're talking about small one off orders I agree with you and that wouldn't be a case where a credit account would be granted.

 

[HFE Signs]

I use CoCredo - But in reality there isn't really a 'best'. I learned that when speaking with a big accountancy firm who had spent 3 years assessing all of the systems - and concluded they were much of a muchness. (Actually, Risk Disk came out top, but by a tiny margin)

More important than the system is how you use it - which needs some education and training.

As @JEREMY HAWKE has suggested, before you go down the route of offering credit, you need to be absolutely clear on why, when and how you offer it. And you need a robust collections policy.

Thanks Mark, I'll check that out - 100% agree, we're not going into this blind, we've had some larger companies on account for over 20yrs

 

[IanSuth]

We use CreditSafe BUT and it is a huge but.

All credit checking systems are looking at the past and that past can be a fair while ago - until the CCJ's start dropping or a set of accounts are filed they are all guessing at what is happening.

Again I would be asking why - in your line I would be tempted to ensure that by the time you deliver a sign you have at least had enough £ to cover the costs of materials to you.

When I was in recruitment we used to worry if a big new client suddenly rang up looking for us to supply temps/contractors with no warning - it was often a sign someone else had put them on hold due to non payment and the outlay before we got paid for temps could be huge (especially with no recourse to pay when paid clauses)

 

[DavidWH]

The debt recovery company we use, provide this as part of their service. So we can credit check customers, and if they don't pay they'll pursue them (with great results too)

We're in a similar line of work to you (not as big) but I decide who gets credit, they have to be spending regularly, reasonable amounts, no point waiting 30+ days for £30.

 

[pentel]

We use Creditsafe but only for the well presented information, group structure and director reports.

We do our own analysis of the financials and always look at both group structure ( there can be big issues in group companies) and directors current and previous businesses.

A well structured collection system is essential, our person who looks after this is very persistent and letter before action and money claim on line are all part of the process ( we have only taken this step once in 15 years).

 

[Byzantium]

We have a simple approach, no-one gets credit.

Everyone worthy of credit has a credit card or a line of credit. Let them use that.

I am however considering offering something like Klarna or PayPal credit where we get paid in full and the credit side is with the third party.

 

[Socio South West]

I am with @Byzantium on this one - you run a business, not a bank. Anyone can get 30 days free credit on a credit card if they pay the bill promptly. Why should you not only carry the cost, but also the extra admin of managing credit accounts?

Most of your products would appear to be produced to customer order and of absolutely no use to anyone else should you end up having to reclaim them for non payment.

If you do go down the credit route, factor in a hefty settlement discount for prompt payment - and enforce it.

 

[Ian J]

I am with @Byzantium on this one - you run a business, not a bank. Anyone can get 30 days free credit on a credit card if they pay the bill promptly. Why should you not only carry the cost, but also the extra admin of managing credit accounts?

That's great if you're a small company dealing with either private individuals or small companies but if you want to deal with larger concerns you will have to trade on their terms .

If you do go down the credit route, factor in a hefty settlement discount for prompt payment - and enforce it.

The problem with offering settlement discounts is that people will still take the discount even if they haven't paid to terms leaving you with the problem of chasing up a tiny debt

 

[JEREMY HAWKE]

That's great if you're a small company dealing with either private individuals or small companies but if you want to deal with larger concerns you will have to trade on their terms .

I often argue against that and we take card payment on booking but to secure a decent load of ongoing work in June I was in this situation I took a chance off a gut feeling for the place. No credit checks

If the August payment gets paid in October we will be up a bit and if they go bust after the November payment than we will be ahead

As Ian said sometimes you have no choice if you want the business

 

[pentel]

We credit check suppliers before using them. A lot of potential suppliers have zero or negative net worth and zero cash. These are the ones that usually want paying up front. Red flag to me.

 

[JEREMY HAWKE]

We credit check suppliers before using them. A lot of potential suppliers have zero or negative net worth and zero cash. These are the ones that usually want paying up front. Red flag to me.

We want paying up front because we have been stitched up so many times in the past

 

[MBE2017]

There is no right or wrong way regarding giving credit, just the way you as a business can afford.

Personally I never give credit until I have traded with the company for six months, and even then I give it sparingly. I turned down a large order recently, it was just under £85k. A competitor took it on credit terms, the firm has gone bust.

That competitor will now have to sell approx £300k to recoup that loss, approx two to three months work. Only offer it if you can afford to lose it, a bit like gambling, even more so in a bad recession.

 

[pentel]

I turned down a large order recently, it was just under £85k. A competitor took it on credit terms, the firm has gone bust.

That competitor will now have to sell approx £300k to recoup that loss

That is a great net margin!

 

[Ian J]

There is no right or wrong way regarding giving credit, just the way you as a business can afford.

I turned down a large order recently, it was just under £85k. A competitor took it on credit terms, the firm has gone bust.

That's precisely why people should look at credit insurance

 

[pentel]

That's precisely why people should look at credit insurance

There may be limits on cover per debtor which could change or be reduced to zero with no notice.

 

[Ian J]

There may be limits on cover per debtor which could change or be reduced to zero with no notice.

Limits on cover or removal of limits should act as a red flag. Using Carillion as an example those companies that ceased trading with them when the limits were withdrawn had their insured debts covered but those stupid enough to think that they knew better ended up with bad debts which in many cases caused their own demise

 

[Mark T Jones]

This is an interesting thread. Whilst I sense that the OP has their eyes open, offering credit is a very risky facet of business. Whilst I don't 'do' credit control, it's an area of business that interests me greatly.

If you are selling goods or services of value B2B, I can guarantee that the topic of 'credit terms' will come up - and at some point you will have a 'stick or twist' decision of either offer credit or to lose a deal/customer. It's a real decision and one that need to be made with proper consideration.

When dealing with start ups offering credit, without exception their projections show all monies being received within 30 days. This always triggers a credit control conversation. Alarmingly often They haven't given any consideration at all. Of those who have most have a vague 'we'll chase them after 30 days' response. that's the credit control equivalent of a marketing strategy that says 'we plan to market on Facebook' - only a whole lot more dangerous since you are have already provided stuff for free.

From experience, the very worst versions of offering credit revolve around:

1 - Gut feel - 'I've met him & trust him'. That's your ego making decisions.

2 - Big name above the door. The common trap of underwriting the ultimate user, not your specific customer. (The construction industry plays this like a fiddle). The only thing that matter is the legal entity with whom you are contracting.

A somewhat distant third is past history. A tricky one - history does count, however the essence of long firm fraud is to create a credible history before the big hit. Whilst you are unlikely to be hit with a long firm (it is always possible), businesses in distress will employ very similar tactics. The only difference is that your struggling customers really want to pay. Which won't help when they go bust.

Like @Ian J I'd strongly recommend anyone offering credit to look at insuring their debt. A good friend runs an electrical wholesale - he insured debt from day one and still swears by it 25 years later. As the construction industry struggles, he is confident of being paid (as long as he adheres to their terms). When your credit insurer pulls back, best to investigate why rather than assuming you know best and offering credit anyway.


A bit of a rant, but in my view a critical one. For many small businesses offering credit is the biggest risk they will take - and should be treated as such.

 

[pentel]

I have always run businesses in the b2b sector and have always offered and taken credit terms where appropriate.

The monthly balance sheet shows how these 2 compare and I look to see that we are owed at least twice as much as we owe with regards trade debtors V trade creditors.

I can see issues when taking credit from suppliers but having customers pay up front in that if a close watch isn't kept on cash then 1 bad month's turnover with not enough new order money to pay creditors would be very stressful.