It is fundamental to credit-check your customers, mainly if you are a small business with cash flow pressures. Efficiently checking your customers’ credit scores is a great way to prepare for potential issues while establishing a healthy cash flow.
Below, we will detail the top reasons for credit checking your customers and how these reasons feed into the above-mentioned benefits.
- Avoid Delayed Payments
If a customer has a poor credit history, there is a significant chance that they have had an experience of missing payment deadlines and not sending payments on time. Devising a credit check will ensure you can outline these risks and prevent your business from receiving missing or late payments.
- Reduce Payment Default
With a credit check, you can identify if your potential customers have good credit scores and are, therefore, less likely to default on payments. If your customers were to default payments to your business, your company might have issues with profits and business liquidity. Credit checks are an accurate way to prevent this, ensuring your business has a healthy cash flow.
- Avoid Invoice Financing
As payments become more delayed, your business may require finance to manage cash flow issues. Invoice financing result in increased costs such as fees and interest charges.
- Keep Your Supply Chain Active
Even having just one customer make a late payment can affect your supply chain as a small business. When you have tight margins to meet and suppliers to pay, you can’t afford to take on customers with poor credit scores. These delays can massively impact your supply chain and stunt new orders, affecting your business reputation.
- Payment Consistency
Although it may sound harsh to credit check long-standing, loyal customers, doing so will help you to minimise the risks of inconsistent payments. After all, your customers’ financial situations and credit scores can change with the current financial climate being so unpredictable.
While you don’t need to conduct persistent customer credit checks, implementing a credit check routine on a semi-annual basis can give you peace of mind and ensure you have an idea of your customers’ financial situations and how best to move forward with your customer base.
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