When it comes to bad debt, the best way to avoid it is to do a credit check on your new client. The rule of thumb to remember is never give credit to a new client before you check if they can, and will, pay you back.
The problem for most business owners comes in because they don't know how to do these checks.
That's why today we're revealing the four steps you must take when it comes to doing a legal and fair credit check on new clients...
Here are the four steps you must follow to do a credit check
According to Inc.com, you need to ensure the credit check is for a relevant purpose. You can't arbitrarily dig into someone's financial history. So only use this check on new clients if they ask you for credit and give you their permission so you can ensure they can pay it back.
If you have this valid reason you can start to take these four steps:
*********** Reader's choice ***************
Are you protected from personal liability in the new Companies Act?
If you're a director - you could be held personally liable for fraud in the company. This means that you need to know exactly what your financial status is.
Relying on your auditor for feedback is not good enough anymore.
Step #1: Get permission from your client
You can't just go and check someone else's records without their permission. Ask your client first and get their permission, in writing, to access their records.
Step #2: Find a credit bureau or service provider to do the check
As I said, you can find hundreds of service providers online and lots of them are free. Use a reputable one, such as TransUnion, to ensure the results of the check are as accurate as they can be.
Step #3: Be sure the service provider you used gave you accurate information by checking your own credit
Often the credit checks contain incorrect information. To check the accuracy of the service provider you used, run a check on your company's credit record. This will help you see how accurate their information really is.
Step #4: Examine and determine what the results mean
You must set your standards for evaluating the results before you even start doing the checks. Depending on the service provider you use, you'll get a rating back that'll show, on a scale of one to ten, where your client sits. A one equals a perfect credit score and a ten is a serious no go.
By following these four steps you can get the most out of your credit checks and prevent a bad debt disaster ruining your company.