Businesses are increasing the risk of late payments by neglecting due diligence
Research from Experian has revealed that 71 per cent of SMEs do not credit check their customers, leaving them open to the risk of bad debt caused by factors such as late or non payment.
According to the survey, which questioned 700 UK small businesses, 39 per cent did not know what a credit score was, and 61 per cent have never checked their own score.
Close relationships with customers are essential to ensure any cashflow issues related to late payments can be identified and overcome quickly.
Carrying out credit checks before entering into a trading relationship will minimise the chance of bad debt and safeguard working capital. For limited companies, searching on Companies House will provide latest credit reports and a quick indication of the firm’s financial standing.
Lloyds TSB Commercial Finance offers an online credit rating facility, Firstcheck, to enable businesses to identify any risks in their client base.
The service provides credit checks on 3.5 million UK firms and can be used to determine payment terms or credit limits for new clients. It also evaluates and reports current business payment performance data gathered from a daily invoice flow through Lloyds TSB Commercial Finance’s factoring operations.
Martin Walmsley, head of debtor insurance at Lloyds TSB Commercial Finance, said: “These figures are worrying, and credit checking customers is an essential step in the prevention of late payments, which continue to be the main cause of cashflow problems for UK businesses.
“Our Firstcheck product is a great tool for firms unsure of how credit checks work and what to look out for, or avoid, in a new customer.
“Our debtor insurance product is also a popular prevention to tackle bad debt. If a business has not taken the necessary precautions and late or non-payments from customers are affecting cashflow, our insurance safeguards against the risk, providing peace of mind for businesses.”
Lloyds TSB Commercial Finance aims to complete 70 per cent of credit check requests within 40 minutes, with the remainder conducted within 48 hours.
Debtor insurance covers up to 90 per cent of the bad debt suffered and we will normally settle your claim within 30 days of receipt of Confirmation of Debt.