Credit advice

Credit costs time and resources. You can reduce the cost by getting small orders started quickly with a 'Fast Start Limit' for any new accounts with no checking. Of course there is a risk but £500, say, may not hurt if it is lost. However, further orders need proper checks.

Use the 80/20 rule to identify the few accounts which buy most of your sales (list accounts in descending order of value until they add up to 80% of the total). Give those a full credit check and only brief checks on smaller ones. Always check customers by size of debt, not alphabetical order, so you never suffer a large bad debt through lack of time.

Agencies should give you full customer details, financial results, payment experience of other suppliers, county court judgments, registered lending, etc. and a recommended credit rating. Read more information on understanding business credit ratings.
Agencies may deliver instant reports through on-line terminals as well as by post or fax. Use an agency with a complete database and a fast response.

As part of the account opening process, the credit application form includes a reminder that bank references may be requested from time to time. It can be useful to obtain a credit reference on a new customer when starting a trading relationship.

A bank reference, known within banks as a 'status enquiry', is a bank's opinion as to the ability of one of its customers to meet a specific financial commitment. A bank will only give a reference if it has the written permission of its customer and normally require a new authority to reply to each and every enquiry. There is a fee for providing references which is typically met by the business making the enquiry.

Businesses should use the following steps to request a bank reference:

  • Complete a request and consent form as fully as possible.
  • Send the whole form to the customer and request they complete the consent section and return the form to you.
  • Send the form directly to the customer's bank using the attached letter.

The bank will base its reply on its knowledge of the financial standing of the customer in question and may also advise enquirers that they should not rely solely on the bank's reply when making their decision. Banks use only standard phrases (e.g. 'undoubted for your figures', 'respectable and good for your figures', 'customer not known to us for long', 'capital/resources fully employed', 'cannot speak for your figures' etc.). Anything less than 'good for your figures' is a guarded warning.

Bank references should be used only for small value decisions or to support other reports. Remember that a bank's loyalty is to its customer, not the enquirer.

Requesting references from other professional advisers to a potential customer could be considered e.g. their accountant. Again, the customer will need to give permission.

Use only referees selected by you and not by the customer.

Customers are not going to offer names of dissatisfied suppliers. Make it easy for the respondent with a printed form, tick-boxes and prepaid envelopes, as shown in the example below

  • Name and address of business
  • How long known (years/less than one year?)
  • What terms (30 days/60 days /longer please specify)
  • Sales per month (£1000/£1000-£5000/over £5000)
  • Payments prompt? (up to 60 days late?/very late?)
  • Name of payments contact
  • Other useful information
  • Thank you for helping.
  • We will reciprocate at any time.

Existing customers provide valuable up-to-date data. Any slowing payment trend or spurious queries are triggers for further checks. Computer systems can give early warnings of changes.

It can be useful to assess premises, staff morale, payment system and company progress. You may hear 'going through a difficult phase', 'a bit of a cashflow problem', 'have to cut back on orders' etc. These should all ring alarm bells.

Competitors in the same trade exchange details of slow payers and risks. Discussion of past events is permitted but collaboration to restrict further trade is not.

If you use credit insurance, your credit insurer can undertake the checks for you.

The Companies Act requires public limited companies and their large private subsidiaries to state in days the average time taken to pay their suppliers and to publish this figure in their Directors report. This information provides small suppliers with a broad indication of when they can expect to be paid. In addition, the Federation of Small Businesses league tables of the average payment times of public companies and their large private subsidiaries. This will allow small suppliers, over time, to monitor and compare the payment times of these companies.

The role of Companies House is to incorporate companies and also to gather and relay information on these companies. They hold details of all the companies registered in Great Britain including details on accounts, mortgages and directors information, including details of disqualified directors.
Information is available by visiting their offices in person for a company search or by requesting the information by fax, post or online. Companies House Direct also provides information on-line and produces a wide range of publications to help companies. They provide information to their customers, including a quarterly customer magazine.

Trust Online

Trust Online is operated by Registry Trust Limited and is a great example of public information being delivered by private means.

Registry Trust Ltd

Registry Trust is a not-for-profit company which operates the Registry of Judgments, Orders and Fines for England and Wales on behalf of the Ministry of Justice, as well as similar registers for Scotland, Republic of Ireland, Northern Ireland, the Isle of Man and Jersey. All the information in the registers is public information and anybody may access them using the Trust Online site. You can check your own records or check other people's or businesses'.

The Insolvency Service maintains two facilities which provide information to the public, the Register of Individual Voluntary Arrangements (IVA) and the Bankruptcy Public Search Room (BPSR).

The Register of IVAs is available for members of the public and can be inspected in person or by written request for individual entry details. Telephone requests are not accepted. Enquirers are requested to provide full details of the individual for whom they would like to search. Enquirers will then be informed of the result of any search and, where a positive match is found, will be provided with a copy of the relevant register entry together with details of the Supervisor of the IVA (who must be a licensed insolvency practitioner), whom they may contact for further details. No charge is made for searches of the Register and the supply of relevant information.

The Bankruptcy Public Search Room maintains a record of bankruptcies from 1973 to the present. Details of bankruptcies dating from 1924-1973 are available on special request but are not available for public inspection and will not be searched routinely. Bankruptcy information is held on index cards filed in alphabetical order, which contain the name and address (at the date of the bankruptcy order) of individuals who have been made bankrupt in England and Wales. The date of discharge is NOT always shown. Searches can be made in person and also by post giving the name, postal address, occupation and date of birth (or approximate age) of the individual to be searched. Requests will normally be returned on the day of receipt, by post. Search requests by telephone cannot be accepted. No charge is made for this service.