Unfortunately, once you go into business and grow your client base and customers, you will very soon begin to face the reality of debt collecting. Sadly, this is part of the business that you will always have, yet you never expected and certainly didn’t want it. Client companies, especially those with whom large amounts of money will need to change hands could have enough impact on your cash flow when they don’t pay you that it could collapse your entire company. These are the kind of clients you want to avoid and don’t have to have to deal with. The impact on larger companies is still massive, but they have deeper pockets to be able to take these knocks while chasing down bad debt. Smaller businesses, however, don’t have this luxury and the period in which they can go on operating without getting paid is significantly shorter. So, good credit control and managing debtors are essential to the success of your company overall.
Thankfully it is possible for credit reports to exist on companies and not just individuals. So before setting up a partnership or taking on big clients, connect with one of the credit reporting agencies out there to help you do a background check. Historical repayment behaviour is highly valuable information that becomes a way of assessing current and future risks. This gives your insight into knowing whether they are notoriously bad for not paying or even delayed paying. From here you can choose whether you want to take the risk and work with them, but at least it is a calculated risk. You could pick up that they are late payers, but regardless they will still pay. This is something you can factor into your business plan with them and structure your budget and finances such as to be able to accommodate these delays. It could also mean putting stringent interest rate penalties that will give you a little extra benefit if they do run late.
The agency can also give you up to date, accurate and regular credit information on the credit profile of those companies that you work with. If anything changes to their risk profile, the checks performed will give you alerts. If credit risk is flagged, you can approach the company directly and talk to them to understand the situation and maybe even help them through it. If you catch it early, then problems can be avoided. By avoiding bad credit risks, the costs associated with debt recovery and debt write-offs can be reduced.
Credit management agencies can also help by offering other services and value adds. They can manage the admin behind payment defaults, debt collection activities and follow-ups, and even go further into setting up court judgments, sending public notices and sending insolvency information. You could hire a person to do this internally, but by using experts in the field, you will always have current and up to date knowledge and expertise working on this. Which is completely worth every cent you will spend on it.
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