How client credit checks can save you money

Written by Satago | Aug 11, 2021 3:51:29 AM

Client credit checking is there to protect you and your business from late payments and bad debt.

Picture the scene: you’ve secured a new client. You bend over backwards to keep them happy. When the work is done, you send your invoice with all the confidence of someone who’s done a great job. The payment deadline rolls around and… nothing. You chase the client for payment, still nothing. A year goes by and with regret, you write off the debt.

Sound familiar? If so, you’re not alone. According to the Federation of Small Businesses, late payments cost the UK economy over £23bn and cause 50,000 businesses to close each year.

A survey from Pay.UK found that one in ten business owners have considered seeking mental health support as a result of being paid late. And 66% say late payments make owning a business less enjoyable.‍

By credit checking your customers, you can save yourself a lot of worry and a lot of money.

What is credit checking?

Credit checking is a way to understand your clients’ financial position and payment practices before you offer them credit. You can run a credit check on any UK business using Satago’s credit checking software.

When you run a credit check on a new or existing client, you’ll find out a lot about them, including:

Credit score: a number between 1 and 100 which indicates how likely they are to pay you on time if you offer them credit.
Payment history: how often they pay their invoices late and by how many days.
Financials: including profit and loss, capital reserves and net worth.
County court judgements: whether they’ve been taken to court by creditors due to late payment.

If you run a credit check using Satago, you’ll also see your client’s risk band and suggested credit limit.

By credit checking clients before you agree your payment terms, you’ll know exactly who you’re working for and how likely they are to pay you on time.

How to read a credit report

Always read the information on your client’s credit report carefully. If their credit score isn’t excellent and they’re flagged as a moderate risk, it may be because they’re a relatively new company, rather than because they have a history of late payment.

Alarm bells should start ringing if they have a bad credit score, poor financials, a high Days Beyond Terms (DBT) average or any County Court Judgements enacted against them. In this scenario, you need to have an honest conversation with your client.

What to do if your client has a negative credit report

If after credit checking your client, you discover they have a history of late payments or are in a precarious financial position, it is perfectly reasonable to ask for upfront or part payment before you start working for them. If they refuse these terms, it might be time to walk away.‍

This may seem counter intuitive, no one likes turning their back on a business opportunity. But consider:

How much money will it cost you to complete the job?
How much staff resource will this job involve?
What other opportunities might you miss while focusing on this client?
If the client pays their invoice six months late, how will it affect your cash flow?
If the client never pays you, how will it impact your business?

When you take these considerations into account, turning your back on a high-risk client could save you money in the long-run and give you time to focus on more trustworthy and profitable client relationships. It will also save you a great deal of stress and anxiety.

How Satago can help

Satago’s cash management platform is designed to help you avoid late payments and improve your cash flow. Our software plugs into your accounting software to provide:

Credit checking: to protect your business from late paying clients.
Real-time client risk analysis: to help you manage existing debtors.
Automated invoice chasing: to save you time and get you paid faster.
Finance options: so you can get the funds you need to grow your business if and when you need them.

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