Every year there are thousands of new insolvencies, with late payments being a major factor in the failure of these companies. Businesses are now getting a little more selective about who they work with, and understandably so. There is now a lot more risk when working with new clients and businesses are a little more cautious about entering into an agreement with a new company.
There is a lot of advice out there about who, and who not, to work with. If a company has poor payment history or unstable cash flow, then we always advise our clients to stay away. It’s easy to say “look for creditworthy companies” but what does a creditworthy company look like?
Good payment behaviour
Money is the root of your business’s success, no matter how good your product is, how great your customer service is, or how well-priced you are; if you’re not getting paid, then you will not succeed. By checking a company’s credit report before entering into an agreement, you can get a good idea about their payment history. If they regularly miss payments or make late payments, it can indicate financial problems, and so it would be best to request a deposit up front or stay away completely. On the other hand, if a business is making payments before, or on, the due date you can be reassured that they have a solid cash flow and will most likely pay you on time.
Understanding a company credit score can give you the peace of mind to go ahead with an agreement (or not). The higher the credit score, the lower risk that a business poses, similarly the lower the score, the higher the risk is. A credit score considers a lot of business aspects so is a good representation of how stable and reliable the company really is.
A credit report gives you information about the company directors too. This may not seem useful but knowing where a director has been can give you an insight into how they run their business. Firstly, if a company has gone through a lot of directors in a short space of time, then it’s a sign that something is wrong. Secondly, you will see if a director has had any previous companies and their current situation (dissolved, insolvent, etc.)
A County Court Judgment (CCJ) can be a sign that a company is not making payments on time, if at all. They are quite serious and not something that should be ignored. A CCJ means that the company has been taken to court over a payment dispute. It is important that you investigate and question the reason for the CCJ with the company if they only have one on their record it may be more complicated than them just avoiding payment. However, if they have collected several CCJ’s it can be a sign that they have cash flow problems.
Sadly, there is no such thing as the “perfect” client, but if you can find a client that fits all of the above, then you are much more likely to get paid on time and encounter very few problems. A credit report can avoid many headaches for your business further down the line and can be a lifeline in the era of late payments. If you want to speak to Commercial Domestic Investigations about how we can help your business, contact our team on 08444 159200, use our contact form or email firstname.lastname@example.org.