How to protect your business by credit checking customers and suppliers

When running your own firm, one of the key measures of success is good financial health. When you’ve established a financially stable business, it becomes critical to protect this position.

If you’re looking to maintain a healthy cashflow, the key is to use reliable suppliers and to avoid risky customers.

One of the best ways to help do this is by credit checking both suppliers and customers before you commit to doing business with them.

Credit check your suppliers and customers now

Screen your suppliers

If you’re looking to vet your suppliers, you can undertake a business credit check on them by contacting one of the credit reference agencies: Experian, Equifax or Callcredit (now TransUnion).

If this reveals, for example, that the supplier has a history of  paying for their own goods or services late, this could have a huge impact on the supply chain and thus your ability to deliver to the customer – so you may want to give that supplier a wide berth.

Equally, if the business credit check reveals that the supplier is not in debt, and that they make payments on time, you can then sign them up with greater confidence that they are both reliable and financially stable.

Check out your customers’ credentials

In addition to screening your suppliers, you may also want to screen your customers.

To do this, you need to put yourself in the role of creditor and assess your customers’ ability to pay you.

One of the easiest ways to do this is by carrying out a business credit check to see whether they pay their bills promptly.

Don't forget that customers might credit check you too. Read here to find out how to improve your business' credit report.

Ask for references

In addition, you can ask for references. By asking your potential customer for a bank reference, you can get a basic idea of how risky the bank thinks your potential customer is before you start a trading relationship. This can provide a useful starting point for assessing risk.

You could also ask people who currently deal with that customer to provide a supplier reference.

But be aware that customers may select a “satisfied” supplier to provide a reference; to get a more rounded view it is worth asking for multiple references.

Set credit limits

As a start-up, you will be keen to minimise risk, and one way to do this is by setting an upper credit limit for customers.

This should be based on references, as well as your own checking.

Check published accounts

Finally, another good way to check out your customer is by asking to see their latest accounts – or requesting their published accounts from a site, such as Companies House.

Did you know you can access your Experian business credit report here?