Small businesses ignore credit checks
Firms at risk of non-payment and debt
Nearly half of British small businesses are risking bad debts by offering trade credit to new customers before investigating their credit histories.
A poll by the Better Payment Practice Group (BPPG), a forum of government and business community representatives seeking to improve the UK’s payment culture, found that 44% of small businesses are automatically extending credit to new customers before checking their creditworthiness.
Only one-third of large businesses reported this practice.
“Extending credit to new customers without thoroughly vetting them exposes businesses to the risk of non-payment,” said Kate Beddington-Brown, assistant director general of the Institute of Credit Management and member of the BPPG.
“The BPPG strongly advises companies to minimise these risks by undertaking research into new customers as part of their standard credit management procedures,” she added.
“Trade credit is a privilege, not an automatic right, and it is vital that companies protect themselves from risk of late payment (or bad debt) by vetting new customers properly before issuing credit.”
The BPPG recommends that companies incorporate credit-vetting procedures into their standard credit management practices. It advises small businesses to investigate a customer’s credit history before trading and to closely monitor the customer throughout the business relationship.
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Among the BPPG’s suggestions for small businesses are to examine new customers’ status reports from credit agencies, trade references, company accounts, bank references and any County Court judgements.