Why is running a credit check before signing a contract important?
How can running a credit check help you establish your terms and conditions?
Before discussing terms with your customer you may want to run a credit check on them. Depending on the outcome of the credit check you may change your terms. You may ask for more up front if they’re given a warning credit rating.
You may ask for less up front if it says their credit rating is good for £10,000 and you only want £1,000 from them.
Doing a credit report on a customer will give you masses of information you can then use. You can get paid reports; there’s some for as little as £1.50 per report. You can do a subscription where you pay for the year and get unlimited reports and you can also get a lot of information for free. I personally tend to go down the free route for the majority of my customers.
I may have a conversation with my customer who wants to do business with me. I go away and put the company name into Google, along with the words “credit rating”. Then have a look at what comes back. You can access so much information for free.
You won’t get figures necessarily or suggested credit limits using the free report but you generally will get whether they are rated green, which is good, amber, which is a warning or red, which means don’t give them credit.
Based upon the outcome of what you find, you can then tailor your terms and conditions to that customer. You can also have a conversation with them, and say:
“Our terms for new customers are X, once we’ve traded with you for a period of three months and we know you pay your invoices on time and we know the work keeps coming in, then we can change the payment terms.”
It doesn’t have to be a deal breaker to find out that someone’s got a poor credit rating. As they say, forewarned is forearmed so make sure you do your research. Make sure you know your customer and then you can tailor your terms to make sure that you are covered.
Hopefully that’s of use to you. Don’t forget, if you have any other questions, contact me on Twitter, LinkedIn and Facebook or just drop me a comment at the end of this article.