Ten tips to improve small business credit practices
Small businesses are often burned by bad debtors because they haven’t put in place solid workable credit practices to evaluate those they do business with. We asked Veda Advantage to provide ten top tips to help small businesses adopt and implement best practice credit practices.
- Develop a credit policy. Take the time to write out a clear and concise credit policy that applies to all of your customers and clients. Businesses should take into consideration some of the following tips when developing their credit policies.
- Ask for a score. Veda commercial scored reports contain key company registration details and rates the business’ risk compared to the Veda Advantage average. It also highlights whether any abnormal activity has occurred and whether there is any adverse information, such as defaults.
- Know who you are dealing with. Part of your credit policy should include finding out who is actually behind the business that wants credit advanced. Veda Advantage reports can be used to verify registration details and ownership.
- Know the credit history of company directors. Veda products can include individual director reports which detail the directors’ commercial credit history and any known relationships with other commercial entities.
- Check whether customers’ assets have existing security rights. Other suppliers may already have rights to claim property if bills are unpaid.
- Implement the policy. Make sure staff are educated on how the policy is to be applied. Credit application forms and check lists help staff follow the correct credit approval process.
- Request back-up if customers fail the credit check. If the new customer cannot provide a satisfactory credit record, get them to provide a guarantor who is financially sound.
- Don’t forget, existing customers can be bad debtors too. Make sure the credit policy applies to the existing customer before additional credit is extended. Veda’s eAlert service allows you to monitor and therefore proactively manage any changes in your customers’ circumstances, rather than reacting to them when it may be too late.
- Create a regular, adequate system to highlight debtors. You need to be able to regularly and quickly identify when customers’ payments are overdue or they have exceed their credit limit.
- Put a policy in place for recovering bad debts. To recover a debt you may wish to take legal action, however, you should always weigh up the advantages and disadvantages of legal action for the recovery of bad debts.