Credit checks are critical in current climate


Not my words, but those of Clive Lewis, Head of SME issues at the Institute of Chartered Accountants in England and Wales (ICAEW).

He urges small businesses to invest in new credit checks on their customers to ensure they are aware of any potentially ‘bad apples’.

“Nobody can hide from the difficult credit situation any longer. Critical to coping with it is rigorous credit control – and that means having up-to-date credit references,” says Clive Lewis.

“Whilst many small businesses are diligent in carrying out credit checks on new clients, the information obtained is only of any use if it is up-to-date. In the current credit crunch climate, customers’ creditworthiness can change rapidly, so it has never been more important to ensure data on your customers is valid.”

Lewis concluded: “Credit information is available online at the touch of a button, so there is no excuse for not being bang up-to-date. Avoiding a bad debt can more than justify the cost.”

I agree with Lewis 100%. However, what I can’t understand is why for the six months we had a free credit rating service available in the Business & IP Centre, only a handful of our customers made use of it.

Top tips from ICAEW

    Get regular up-to-date credit information on major customers and periodic updates on smaller accounts
  • The credit limit (as suggested by the credit check) shows the
    maximum amount which may be owed by your customer at any one time –
    make sure your sales don’t exceed this limit; and ensure you have in
    place robust internal procedures for dealing with customers who exceed
    their limit
  • Assess your payment terms – make sure you have agreed when you
    will receive payments and remind your customers about the payment
  • Don’t be afraid to chase your customer for payment – waiting
    politely will not help protect your business and your shareholders
  • Remember: a sale is not a sale until you have received payments!

A credit crunch silver lining?

I got the day off to a depressing start on Monday by listening to a recent Radio 4 In Business podcast on the credit crunch.

It consisted of a live discussion with the following experts:

  • Keith Clarke, Chief Executive, Atkins Engineering
  • Jon Moulton, Founder, Alchemy Partners
  • Julie Meyer, Chief Executive, Ariadne Capital
  • Bob McKee, Chief Economist, Independent Strategy
  • George Cooper, Author, The Origin of Financial Crises and Fund Manager, Alignment Investors
  • John Kay, Economic Commentator

Although John Kay was the least pessimistic in terms of how bad we can expect the economy to get, the only person who had anything positive to contribute was Julie Meyer, the co-founder of First Tuesday, who spoke at our Desperately seeking finance event in April. She felt that the economic downturn would lead to an increase in small business startups, particularly one person companies. Certainly my 16 years working in the City of London leads me to believe that many of the recent (and expected) redundant staff will welcome the opportunity to explore more satisfying and valuable career opportunities, even if they are less materially rewarding.