Why you MUST Credit Check your Customers?
This is one of the most important posts for you to read as a business owner today. Especially as we are in the midst of a global pandemic, and especially as the chances of many businesses running out of money are at their all time highest.
Today we’re talking about credit checks, demystifying what it is, how you can do it, and why you should be credit checking your customers as part of day to day business.
First of all, if you’re new around here, hi, my name is Pete, and I run my own businesses.
Last year I sold my IT Business which I built from scratch over the period of a decade, grew to 16 staff and hit the magic 1m turnover.
Today, I now run 1, 2, and including last week’s one – 3 businesses. I’m now a multi-businessaire!
For those of you who aren’t new here, thank you. We just hit 7 thousand subscribers on my YouTube channel, Insaaaane.
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There is so much to think about when running your business, and I’m sure people have mentioned credit checking to you before. Like me when I first heard about it you just nod your head and go yeah, that sounds like a great idea – or perhaps like me you go, credit check? Of course we credit check our customers! What kind of business would we be if we didn’t do something as basic as that!? hah.
So in this post I’m going to run through why you should credit check your customers, what to use TO credit check your customers, and how to set it up so that you can just set and forget. Allowing you to get back to running your business and not waste any necessary time to manage this going forwards.
Be sure to stick around until the end because after we’ve looked at credit checking your customers, I’ll also cover another way you can use what I talk about in this post to help you grow your business.
Before we start
Leave something in the comments below if you’re reading this, let us know your stories about where a credit checking system could have protected you against something that happened to you in your business. With that said, let’s begin first of all, with why you should be credit checking your customers.
WHY CREDIT CHECK YOUR CUSTOMERS?
Without teaching you to suck eggs here, credit checking customers can be the difference between you getting paid, or not getting paid.
As a business you should have any payment terms set to work for you, not against you. Let’s say you have to buy hardware and pay for it, then you should make sure that you are getting paid for that hardware before you pay your supplier.
If something happens to your customer, which prevents them paying you, then you’d quite like to be first on the list to know that they can’t pay you, right?
Well, if you are credit checking your customers both when you onboard them and monitor them as the months and years roll by, then you will know so much about them that you wouldn’t have known otherwise.
It’s this information that you will absolutely need to be able to make a decision on whether you take on that customer, or offer them any form of credit terms.
Credit Checking your customers gives you access to information like, how much credit should you give them for a one-off purchase? What to set their credit limit to on a monthly basis, particularly if you are selling a monthly service to them.
Most importantly it will also tell you more than just those financial stats. It will tell you if there is any change of ownership of the business, if they’ve had any CCJ’s lodged against them, if they’ve got any mortgages against the business, and it will go on into so much more. You can see the shareholders of that business, and then look at any other businesses they have owned before.
Using data like this, means you can quickly establish whether they are one of those serial entrepreneurs that spins up a company, runs it into the ground, liquidates it to get rid of all of the debt, then starts another one and the wheel keeps on spinning. Whilst in the mean time, legitimate businesses lose income as these people try to game the system.
On that happy note, let me show you what to use credit check your customers.
TOOLS FOR CREDIT CHECKING
They are one of the main companies here in the UK, I think one of only 5 who hold the top level information. Many of the other online credit check services will actually be buying their data from third parties, so you won’t be first to see up to date information.
They also offer a wide range of services from credit checking, monitoring services, debt collection and so much more. But this isn’t a sponsored post, they’re not paying me to say that, so let’s just get on to the good stuff.
With Credit Safe, you simply get an account with them, which costs anywhere between £500 to £1000 per year, if I remember correctly.A niggle of mine is that they’re one of those companies who don’t put the price on their website, which would normally put me off from the get go. However, once I signed up for the first year it was a no brainer to have this in place.
Once you have your account, it is as simple as going into the search bar and typing in either the name of a business, or the name of a business owner and hitting enter.
This will immediately return a list of all of the results, so just find the one you are interested in and click onto that.
Once you’ve brought their records up, you can see immediately at the top they have a credit score, 100 being great. This is a really bad example as I haven’t submitted any accounts yet, so let’s take a look at someone like – Ooh let’s look at Microsoft.
Wow, well they have a pretty perfect credit score. 100 out of 100. If for instance they had a score of say 1, that would mean that your money is as safe as it would be buying some shares in Gamestop right now… but anyway, you can also see that you get a credit limit and a contract limit.
These are great indicative figures to know, so that when you are taking on board a new customer, you can glance at these 3 numbers to quickly determine if this company is someone that you should be doing business with. Do take some of these figures with a pinch of salt.
Many of these figures are based on annual accounts – so if the company hasn’t filed their accounts for a year, then those figures could be very different. Also if the company is new then it will likely not show much information.
Going back to Microsoft, you can drill into whatever details you want – see what other businesses the owners have ever been part of, and see the finances of those businesses too. You can also see the history to see any significant changes over time. In the video for this post you can see Microsoft’s score has improved year on year. But if someones score is getting lower each year, then that would raise some flags to be aware of.
HOW TO SET AND FORGET
The magic comes from this next step, which is how to set up Creditsafe so you can just set and forget, because you can’t keep logged on and checking every so often to make sure nothing is happening that you aren’t aware of.
This is when you will use their monitoring system, or Risk Tracker is what they call it and it’s as easy as following someone on twitter.
By default there are a few categories, or profiles as they call them, set up within CreditSafe as you can see here.
If you click into say, Customers 1 for example – you can see that we can monitor for specific changes to any company that we want to.
Here we will be notified when they file their accounts, the status of the company changes, CCJ is added, and importantly if their overall credit score or credit limit changes.
Now all you need to do is work through your list of customers, search for them by name, company number or whatever, and just hit the ‘follow’ button on the page.
Once you’ve done this, you will get an email automatically when something changes, with a handy link that will take you directly to the change.
Just keep an eye out for these emails, and then take action if something negative happens which may put your business at risk. Say, for example, getting a CCJ before the rest of the world realises what’s going on.
Things that I’ve seen over the years are when companies have been sold to new owners, without any communication from the client – something that I only discovered because of these alerts. This allowed me to proactively reach out to that customer and start a relationship with the new owners, rather than being on the back foot.
I’ve seen credit ratings drop through the floor, which has allowed us to decide whether we want to take payment in advance for any further orders until credit limits improve. This helps you make the tough decision to lose that client who perhaps are already always late paying you.
DEBT COLLECTION SERVICE
By following these steps, and setting up these notifications, you will significantly reduce the risk to your business by being able to make decisions before anybody else does. I definitely urge you to consider signing up for some form of credit check service. Ideally from someone like CreditSafe – because they get hold of that credit information ahead of many of the other online websites.
Again, this isn’t a sponsored post, they’re not paying me to say any of this. I just genuinely used this in all of my businesses and it’s helped me to avoid some difficult situations where I’d be left to foot the bill of a company who were in trouble.
I don’t mind doing as much as I can to help companies who are in trouble – I’m not saying you should just look at their poor credit score and then terminate them as customer. But it’s those ones who never pay on time, who never answer your calls, never reply to emails and just give you nothing. I just have no time for those clients. At least the ones who are open and honest who say, hey we are having a rough time right now, I’m waiting for clients to pay me before I can pay you. the ones who say we are trying our best and I hope to pay you next week, then I’m a little more inclined to help those, compared to the ones who just go quiet. Those are the ones you need to worry about.
- You should credit check your customers to protect yourselves against that often feared scenario where your customer goes bust, and you’re left with costs to pay and nobody to pay them for you. A situation that nobody wants to be in I’m sure.
2. Use something like CreditSafe – there are others out there, but I have personally used CreditSafe over the years and can vouch that their service for me has been reliable and simple to use. It has caught a number of situations that I would have missed, had I not had their service – which has more than paid for the subscription
3. Create a category for All Customers, but you could also create one for Suppliers, Competitors, at risk customers, whatever you like. Then add companies to those lists so that you are notified when things change.
Finally with that said, I wanted to talk to you briefly about one thing you can use that will also help your business beyond just monitoring your customers.
You can of course use this to monitor suppliers, and also competing businesses. Simply create a list like we did before for Customers, and then add those companies to those notification lists, so that you’re notified if anything changes.
This can be an eye opening exercise to see how the competition is shaping up. You’ll be able to see historic trends to see if your competitors credit limits are historically going up, or down, and it will show you if they are making a financial loss each year.
The figure I always found fascinating was the net worth of a company, because a short number of years into running my own business – I discovered that CreditSafe believed the net worth of my small business to be more than a much larger competitor. Super interesting!
Just to be clear here, I’m not saying to use this as a tool so you can go and find a company that’s about to fall over, to then run a marketing campaign against said company, or target their customers to win them over. This in turn could crush that already struggling business. However, it could open up opportunities for acquisition perhaps, or even just be prepared to hire some new staff.
I dunno – some of how you use that information definitely comes down to that question around ethics once again. I actually made a video all about ethics which you can view here, I’d highly recommend every business watches it.
If you wanted to sign up for CreditSafe, I got in touch to ask if they have any form of affiliate links or anything that can get you a discount, and they don’t – but if you follow this link it will take you to a LinkedIn Profile of someone I’ve been speaking to at CreditSafe who will make sure you are looked after, and miiight be able to arrange some sort of discount – Though I didn’t tell you that 😉
That is all for this post – of course and as always, head over to the YouTube channel and like the video, subscribe if you’re not already and hit the bell icon to be notified when new video’s are posted. Bye for now!
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Disclosures: All opinions are my own. Some links in the descriptions are affiliate links that if you click on, I’ll receive a commission at no additional cost to you.