Company Credit Checking
The most important (and easiest) piece of information to obtain is a Credit Report from a UK Credit Reference Agency such as UK Data Ltd. These reports show detailed financial information, along with risk ratings and a suggested maximum credit limit for the customer. If you have the resource available, it may also be worthwhile obtaining a bank reference and references from your customers key suppliers.
 |
Credit Report
Most people are aware of personal credit ratings, where payment records and credit applications are used to assess your credit risk. The same is true for businesses, where credit agencies gather information about trade business transactions to establish a business credit rating.
Credit agencies use a number of sources to find information about Companies, which can include payment data from company suppliers, financial reports, web mining, news and financial accounts.
Credit reports include full customer details and financial results along with the payment experience of other suppliers, county court judgments registered against them and a recommended credit rating (some reports also show recommended maximum credit limits).
Essentially, a finance expert has interpreted the Companies financial accounts and collated other relevant information to arrive at an overall risk score. Meaning that you can obtain quality information quickly and easily.
When you obtain a credit report it will show a maximum recommended credit limit. You should set the limit offered to the customer significantly below this amount and increase the limit periodically if required.
References from your Customer's Suppliers
Trade suppliers you approach for a credit reference should have no links to your customer other than being one of their core suppliers. If possible, ask your customer to supply five references and tell them they you will contact two from the list.
Ask them:
- Whether they are in any way associated with the customer, other than as an arm's length trade supplier.
- To confirm your potential customer's trading name and address.
- How long they have dealt with them.
- What credit period they give the customer and whether they get paid on time.
- What credit limit the customer has and how much is currently outstanding.
Most references will be given in writing. Telephone the suppliers to thank them for their help, and ask them if there is anything they can tell you over the phone that they could not put in writing.
Bank References
Banks will supply references but your customer must authorise the request. However, bank references take time to obtain, cost £10-25 and are notoriously vague. For this reason, even large businesses with sophisticated credit control procedures tend to ignore this approach. Tell the bank exactly what credit you plan to offer (e.g. £500 limit, payable monthly) and ask if the bank knows of any outstanding writs (demands for payment made through a court). As a general rule, the longer the bank letter, the more you should worry.
As a rule, the larger the amount of credit a customer asks for, the more checks you must make