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Protect Your Business From The Risks Associated With Bad Debt.
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The current increase in insolvency figures, coupled with rising material costs & labour shortages, highlights the importance of taking preventative measures when taking on new customers as well as keeping cash flowing through the business with the effective collection of overdue invoices.
By implementing effective credit management practices, you can protect your business from the risks associated with bad debt.
Standard credit information can help you assess the level of risk when dealing with new customers and maintaining ongoing trading relationships. Obtaining an unbiased third-party opinion, which analyses financial data, public records, economic indicators, and industry pressures, can provide valuable insights into a company’s creditworthiness.
However, industry-specific credit information goes beyond a standard credit report. By leveraging a community of businesses sharing their trading experiences, you can develop a more accurate assessment of the risk to your business.
Understanding the potential delays in receiving payments beyond the agreed terms is essential in determining whether your business can manage the associated risks. By considering the average time it takes to obtain payment under normal circumstances and the credit amount involved, you can assess if your business can sustain such delays.
Even if a standard credit report indicates a favourable financial position, relying solely on this may lead to overlooking vital information specific to your industry. For instance, other suppliers may currently face significant payment issues, which could adversely impact your business if not taken into account.
Hence, it is crucial to have access to industry-specific credit information to gain a comprehensive understanding of the creditworthiness of your customers. This way, you can mitigate the potential risks associated with delayed payments and ensure the financial stability of your business.
Assessing Risk Doesn’t Stop at The Account Opening Process
Regularly assessing the credit risk of a new customer is crucial in order to minimise the risk of bad debt and protect your business.
While the account opening process provides initial information about the customer’s creditworthiness, it is important to continuously monitor for any changes that may impact their ability to make timely payments.
Receiving notifications about county court judgments (CCJs) and other court orders can provide valuable insights into a customer’s financial situation. However, it may already be too late to take appropriate action. Other creditors may have already taken steps to recover their debts, leaving your overdue invoice further down the line.
In addition to relying on mainstream credit information, it is beneficial to receive early warnings about changes in trading patterns and experiences from other suppliers. These insights can provide crucial information about the financial health of your customer and their ability to meet their payment obligations.
By implementing these strategies and staying informed about your customers’ creditworthiness and payment habits, you will effectively manage credit risk throughout the customer journey and protect your business from potential financial losses.
For construction businesses we offer a free trial of our industry specific credit information and debt recovery services.
Contact our team of experts on 01527 518800 for more information.