Many people love the idea of running their own business but are concerned about the stability of self-employment.
In theory, it should be simple; you do the work, you invoice your customer and they pay you. But there may be times when you come across a customer who says they aren’t in a position to pay your invoice right now.
Late or missed payments cost the UK economy a staggering £51.5 billion in 2018.
Late payments cause cashflow problems for businesses of all sizes. While larger companies may have the resources to see them through, small businesses don’t. Shockingly, late payments are attributed to the closure of 50,000 small businesses each year.
Knowing you are working with customers who are in a position to pay your invoices by running a credit check on them before signing a contract can give you the pace of mind you need.
There are several ways of checking the credit profile of your customers. Some of these methods include:
Ordering a copy of a credit report is the most comprehensive way to get a full run-down on their financial position of a potential customer.
There is normally a charge to obtain a credit report, which can be ordered online from a credit agency. But the report will provide details of ownership, information on their business accounts including bank accounts and credit cards. You’ll also have access to the customer’s payment history, any outstanding balances they have, plus details on past bankruptcies or court judgements.
The credit agency may also include a credit score that weighs up the associated risk attached to the customer.
You can request that the customer provides you with a reference as evidence they can meet your payment terms.
This reference may come from their bank. While this doesn’t act as definite proof, they will honour your invoices, it will set out the bank’s opinion of them in terms of risk.
Another type of reference is a supplier reference. This will be provided by a company that the customer is/has worked with, and it will give you an account of what the customer is like to work with.
It’s good practice to obtain several independent supplier references, so you can have a clear picture.
The Prompt Payment Code
This a voluntary code that companies can sign up to, and by doing so they agree to commit to several obligations. One of them is paying 95% of their suppliers in 60 days.
You can check the register to see if your customer is signed up it. If so, it could be a sign they have good payment practices. However, as it’s voluntary, there’s no legal requirement for them to stick to the commitments outlined in the code.
If you’d like to discuss how our services can support you as a contractor, send us a message through our website or speak to one of our Directors on 01962 867550.