July 31st 2019

Weighing up credit terms for new customers

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Cowgills

Winning a new customer is exciting for any business, but working to keep that customer can be hard work. You pull out all the stops to make the customer happy and you also go the extra mile compared to your competitors.

However, your new customer has requested credit terms…

Do you grant these?

Do you refuse?

If you don’t, will your competitor?

These are the issues facing credit managers and sales teams in most businesses. Based on our experience, here are a few suggestions on how you can effectively manage this potentially tricky situation.

Credit checks

Before granting credit terms, do a background credit check using a system like Experian.

You can also review the company accounts at Companies House which may give you an indication of historical turnover. Although these checks are not a definitive way of proving whether you should grant credit terms, it can give you a bit of history that you can then ask the customer to explain; all in a friendly manner of course.

Get to know your client

This may seem like a given, but it really is an effective tool for ensuring that invoices do not go unpaid. Human nature often forces more positive cooperation between individuals if they are very well acquainted. So go out and meet your customer and the person in charge of their purchase ledger.  Take the time to understand their business and understand their potential cash flow issues.

Keep tight control of the account

You probably already have internal processes to make sure you are fully appraised of each customer ledger, but make sure that you have a process of immediately identifying and addressing any late payment.

A friendly call within a day or so of payment not being received will often prompt an apology followed by payment. As I am sure you are aware, delaying payment of invoices is often itself used as a way to control cash flow and it’s definitely true that “the loudest creditor will always get paid first”; so, be the loudest creditor!

References

Obtain references.  The customer will have credit terms with other businesses so ask if you can speak to them to make sure that there are no issues.

In summary

Following the above steps will mean that you’ve undertaken some due diligence on your client and should, in turn, be able to build a better picture of the risk involved with agreeing to their credit terms.   Whilst situations can change quite quickly, the above should give you peace of mind that you know your client and have addressed any potential issues.

How Cowgills Creditor Protection (CCP) can help?

Part of the service that CCP offers is a free credit check. If you wish us to review a potential customer for you, we will review their credit history and produce a brief report for you assist you in your decision on Credit Terms.  If you would like us to undertake this for you then please contact our head of Creditor Protection, Jordan Heys jordan.heys@cowgills.co.uk.