It is very important to exercise good business practice and also common sense ahead of extending credit to any business. In the same way that you can test drive a car before buying it, looking into a company’s credit history is an important step ahead of any business deal. There are many methods of checking whether a company is creditworthy and obtaining a credit report is one way of telling if a business will be able to pay on time or not. The detailed information in a credit report can help with a decision about whether or not to extend credit in the first place. Riskdisk Ltd is one of the UK’s most trusted business credit reference agencies, providing 500,000 large, medium and small businesses with credit reports every month, plus a complete online service to nearly 20,000 companies.

Steven Marriott, performance manager at Riskdisk, said: “The aim of a credit reference agency like Riskdisk is to provide you with a reliable, accurate and yet inexpensive source of information and enable you to assess the suitability of your customers and minimise the risk of bad debt. You can log on to a system like Riskdisk for a small fee. If you are checking a company, you can do this without permission as the information available is in the public domain.”

Running a credit check is a simple process. The first step is to check you have the basic information to begin with. Every limited company is required by law, to quote its registration number in legible characters on all business letters, order forms, emails and any websites it operates and this, along with the full company name is vital when running any kind of credit check.

Steven said: “You can make a search by either the company name or registration number if you are looking at a PLC or a Limited company. This will give you access to their accounts, credit scores and limits, CCJ information and director information.” If the check reveals a less than perfect credit history, it doesn't automatically mean you shouldn't do business with that company. It does, however, allow you to make an informed decision about the proposed deal. You may, for example, want to ask them to pay part of the bill up front or give them shorter payment terms.

If you have a long-standing client base, it is important to continually check payment patterns – just because a business is a long-standing customer does not mean they are creditworthy. In the same way, don’t assume that large, multinational companies will have a perfect credit history. Appearances may be deceiving and although a prospective client may be saying all the right things, if you do decide to trade with them it is important to check their financial history first. Remember that even very large, prestigious, multinational companies can fail and in the last few years we have seen the demise of big names such as Woolworths and Jessops.

If a company is taking longer and longer to pay, find out why – there may be a good reason. The main problem in these types of situations is that many small companies are reluctant to ask larger businesses to pay up in fear of damaging a relationship or losing business all together. Steven said: “No matter the size of your organisation, or the one you are dealing with, noone should feel embarrassed about running a credit check. In today’s economy you need to know more about who you are working with more than ever before.”

In reality it is just best practice to pay invoices on time and on the other side to follow up any outstanding payments in a professional and timely manner. Small businesses should also remember that if payments are not made within the contracted terms, interest can be charged. There are other methods of checking a company’s credit history. Trade references are a way of looking through other people’s experiences in dealing with the company in question. The only downside of this is that the company will usually provide references from their best customers, not those who have had bad experiences with them. Accreditation to a trade association such as PROMOTA, is another useful tool in establishing the credibility of a company - accreditation confirms that a company is well established and reliable.

In an ideal world, of course, you would only deal with customers who returned a perfect credit history when checked. However, in today’s economy, few companies have the luxury of being able to do that. The process of credit checking, and looking for other endorsements such as trade references or accreditation to trade associations which allow you to make calculated decisions, will help you to minimise the risks that can occur when extending credit.

For more information about PROMOTA, call 0845 371 43 35 or visit www.promota.co.uk

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