Most SMEs Fail to Check Customers’ Credit Status

Credit checkA worrying lack of credit awareness amongst the UK’s small and medium sized business community has today been revealed by new research from Experian, the global information services company.

Experian’s survey of nearly 700 UK small businesses found that 71%did not check their customers’ credit status, exposing them to a greater risk of being paid late or not being paid at all.

The survey also revealed that 39%of small businesses did not know what a credit score was, while 61%have never checked their own score. Businesses that do not check their scores are unlikely to be aware of any issues until they lose out on a contract with a potential new customer, are refused materials from a new supplier or are turned down for finance.

Credit scores provide an assessment of a business’s financial health, with a low score implying that a business is more likely to fail. According to Experian, for small businesses many low scores can stem from a lack of detailed data about the business or a failure to file complete or accurate information, rather than underlying financial insecurity.

A low credit score can affect a business’s ability to access finance or attract new customers, while it could also force suppliers to impose more stringent trading agreements. Small businesses tend to rely on a small pool of suppliers and customers, and a single customer loss or change in terms can have a large impact on the financial health of the business.

Simon Streat, Managing Director of Experian’s UK SME business, said:

“Two thirds of small businesses may be blind to their credit scores, but their larger customers, suppliers and banks certainly won’t be.

“Failure to address credit problems may put small and medium sized businesses at a big disadvantage, as many organisations will be put off engaging with a company that has a low score. It is important for businesses to monitor their credit score on a regular basis to ensure it reflects their situation accurately and to be able to take action to resolve any issues that are highlighted.

“Simply taking the steps to check the credit score of firms before doing business with them is straightforward and affordable, and it could make all the difference.”

Factors such as incomplete accounts, a location change, the move from non-limited to limited status, or mergers and acquisitions, can all influence credit scores. By engaging proactively with credit reference agencies, firms will be better equipped to take action to boost their score and improve the external perception of their business.

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