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Credit control: A Guide for Start-ups
How do I check a customer’s credit?
Before extending credit to a new customer, it is important to check their ability to pay back the debt. You can do this in a number of ways:
- Pay for a credit check online. Companies like Creditsafe and Experian can provide you with credit ratings for the customer you are dealing with – you should expect to pay less than £20 for a basic credit report. Reports are normally instantly delivered, meaning this is often the quickest and easiest way of checking a customer’s credit history.
- Ask for references from existing suppliers. Ask the company to give you the names of at least two suppliers they have had credit with in the past. Be aware, though, that the customer is unlikely to reveal the names of suppliers they have had a poor history with. Contact the suppliers and ask them:
- Have you actually dealt with this company in the past? Can you confirm the company name and registered address?
- How long have you been doing business with them?
- What credit terms is the customer on? Do they pay on time?
- Do they have any outstanding credit at the moment?
- What is their credit limit? Why is it set to that amount?
- Do you know the customer in any way other than a professional setting?
- Ask the customer’s bank for a reference. You need to get the customer’s written permission for this, and references will cost around £20. Write to the bank, telling them the credit terms you plan to offer the customer and ask them whether, in the bank’s opinion, they will be able to meet these terms. Responses can sometimes be difficult to interpret. However, if the response does not contain a phrase to the effect that the customer is “good for your figures”, you should take particular care. Ask the bank whether they know of any proceedings for the recovery of debt currently active against their client.