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How can I find out if my customers are credit-worthy?

How can I find out if my customers are credit-worthy?

As a small business, contractor or freelancer, it is vital to carry out a credit check on customers, including other businesses to protect your business from non-payment or bad debt. Using data intelligence and forensically investigating your customers, such as through the Companies House website can help you make better-informed business decisions.

It is vital to check the creditworthiness of customers before trading with them or extending credit as if this takes a bad turn, you could be left with a black hole in your working capital. This could create a domino effect, staggering productivity and slowing down growth as a result of cash flow problems.

Using Companies House to check financial health

Companies House is the UK’s public register where you can find the essential details of a business, such as the registered office address, submitted accounts, active and resigned officers and previous and existing charges. The accounts section can prove very resourceful as this illustrates the state of the company’s financial affairs. The bankruptcy and insolvency register also allows you to search for people who have undergone bankruptcy in England and Wales.

Credit reference agencies for small businesses

The main credit reference agencies in the UK providing services to businesses include Experian and Equifax. You can set alerts so you can keep a close eye on businesses you are trading with. It’s important to note that a limited company is its own legal entity so it will have its own credit record, as well as the director of the business, so it is advised to check both.

Trading with private UK businesses

If your customer base includes UK businesses, there are platforms which allow you to perform financial health checks, helping you ensure that the business is dependable, reliable and responsible with its finances. Data intelligence providers, such as Red Flag Alert can help drive the performance of your business by protecting you from the bad apples. You will be able to carry out credit checks on a host of UK businesses registered on Companies House. The health rating system ranks from amber to gold, showing if the business is financially sound or at an elevated risk. A range of one to three flags will indicate whether any detrimental data is held on the business, including an insolvency flag which shows whether the company has undergone any form of insolvency.

In addition to checking Companies House, running a credit check and using data intelligence; using traditional methods to check the spending and borrowing behaviour can also include word of mouth and online research. If you’re searching for customer or supplier feedback, do a quick search online, check review sites and social media to gain a real impression of the credibility of the customer.

At Handpicked Accountants, we actively publish advice for small business owners and the self-employed workforce on making better business decisions through due diligence, keeping on top of accounting records and operating cost-efficiently. Our Handpicked Accountants pick only the best performing accountants to ensure that you receive quality advice and customer service. Find your perfect accountant or call our specialist team on 0800 063 9258 for a personalised recommendation.

David Tattersall
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Hi there - I'm David from Handpicked Accountants. If you need help finding the right accountant, simply give me a call. My expertise is in connecting business owners with the very best professional services and I'm on hand to assist you today.

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