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Finding out a Company’s Creditworthiness

Discovering creditworthiness of companies

How can I make sure I get paid if I offer trade credit? 

There are various ways to minimise your exposure to late payment or non-payment by clients. You can research a new potential client on the Companies House website (http://www.companieshouse.gov.uk/) or use a credit risk agency such as Experian (http://www.experian.co.uk/) or Equifax (http://www.equifax.co.uk/) to find out more about the finances of any particular company. You can also implement an internal process for managing trade credit, using relevant application forms and documentation.

One method of reducing the risks of offering trade credit is to assess any prospective clients using an appropriate trade credit application form. As well as confirming the details of the company with which you will be doing business, this should record information in respect of references, the amount of the credit limit being requested and the acceptance of any related terms and conditions. The next step will be to contact the referees stated in the application form.

Seeking references when offering trade credit

Seeking references from a bank, accountant or existing suppliers of a potential client can further help to assess the suitability of the company in terms of handling credit. Although good references do not provide any guarantees, they should give an indication of the likelihood of debts being settled on time. You should try and be as specific as possible in each particular request as this can help the referee to give a more accurate indication of risk. Permission should always be sought from a prospective client before taking up references and data should obviously be treated in confidence and in accordance with data protection requirements. It’s also worth noting that banks generally charge a fee for handling reference requests or “status enquiries” as they are also known.

Letting down clients gently 

A standard letter which informs a potential client seeking to do business on trade credit terms that their application has been unsuccessful can be very useful, especially if you need to assess several applications at once. It should generally refer to information received from references or credit reference agencies and mention the possibility of reassessment. Ensuring that you have access to a set of template letters generally makes business processes smoother and improves speed and efficiency.

A variety of documents which can help with discovering the creditworthiness of companies can be downloaded from our Business Documents Folder. 






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