7 ways to reduce debtor days #6 Credit Checking


For any company that offers credit to customers, a strict credit control process is required. Part of this process is to check whether a customer is creditworthy, or to use credit checks to decide the level of credit to be offered. Making sure that a client has a good credit score will help to reduce the number of debtor days, especially if used in conjunction with a strict credit control procedure.

What are credit checks?

When your business involves making supplies to customers, you may often wonder about that person’s financial background and whether they will pay you within the agreed terms. When you supply a customer with goods, you rely on the money owed being paid as quickly as possible. To try and reduce the risks of lending to a new client, a credit check may be carried out.

A credit check is an overview of your financial history, presenting information to indicate whether you are likely to pose a risk to a supplier. Details of how much has been borrowed and whether it has been paid in a timely manner are all included in the report. If there have been missed or late payments, the credit check will reveal them.

Why conduct credit checks?

If you don’t have any information about a customer, you are at risk of not being paid on time, or even at all. Knowing the financial status of a customer could help you to reduce the risks involved with nonpayment of invoices.

The credit check will usually contain a risk score that can be used to indicate whether a business is likely to become insolvent during the next year. If you offer various levels of credit, the check will help you to decide the level of credit you are able to offer with minimal risk to your company. This can be carried out by your accountant as part of an accounting solution.

If you don’t carry out credit checks and you have customers who don’t pay, your company may be plunged into financial difficulties. Obtaining a credit report of a customer will allow you to prevent nonpayment in the future. Protecting your cashflow is crucial, as without it you may end up with a poor credit rating yourself due to not having the cash to pay your suppliers.

For more ways to improve cashflow and to see how implementing various methods would affect your business, use our cashflow improvement calculator.