Credit checks are critical in current climate

Knowing who you are dealing with is the key to survival in the current turbulent economic climate, suggests Clive Lewis, Head of SME issues at the Institute of Chartered Accountants in England and Wales (ICAEW). He urges small businesses to invest in new credit checks on their customers to ensure they are aware of any potentially ‘bad apples’.

“Nobody can hide from the difficult credit situation any longer. Critical to coping with it is rigorous credit control – and that means having up-to-date credit references,” says Clive Lewis.

“Whilst many small businesses are diligent in carrying out credit checks on new clients, the information obtained is only of any use if it is up-to-date. In the current credit crunch climate, customers’ creditworthiness can change rapidly, so it has never been more important to ensure data on your customers is valid.”

Top tips

• Get regular up-to-date credit information on major customers and periodic updates on smaller accounts
• The credit limit (as suggested by the credit check) shows the maximum amount which may be owed by your customer at any one time - make sure your sales don't exceed this limit; and ensure you have in place robust internal procedures for dealing with customers who exceed their limit
• Assess your payment terms – make sure you have agreed when you will receive payments and remind your customers about the payment deadline
• Don’t be afraid to chase your customer for payment – waiting politely will not help protect your business and your shareholders
• Remember: a sale is not a sale until you have received payments!

Lewis concluded: “Credit information is available online at the touch of a button, so there is no excuse for not being bang up-to-date. Avoiding a bad debt can more than justify the cost.”

For further advice, contact a chartered accountant.

Media enquiries

Contact Kirstina Reitan, ICAEW press office, on 020 7920 8607 or email Kirstina.reitan@icaew.com