The Better Payment Practice Group finds that two fifths of businesses risk bad debt by not credit vetting new customers.

Research by the Better Payment Practice Group (BPPG), has found that two fifths of businesses are risking bad debts by offering trade credit to new customers without checking their creditworthiness first. Small businesses are most at risk, with 44% extending credit to new customers, compared with a third of large businesses

The poll, which was held on this website, asked businesses whether they automatically offer trade credit to new customers. Of the 659 respondents, 42% said that they automatically offer trade credit to new customers, while 58% said that they do not. The survey also asked respondents how many employees they had and found that small businesses, those with 50 or fewer employees, are more likely to offer trade credit without checking creditworthiness than larger companies. Of the small businesses surveyed, 44% stated that they automatically offer trade credit, while only 31% of respondents with more than 50 employees admitted the same.

The BPPG recommends that companies incorporate credit vetting procedures into their standard credit management practices. This includes checking a new customer’s creditworthiness before trading with them and then closely monitoring them during the early stages of (and throughout) the business relationship to ensure payment problems do not develop. Sources of credit information include:

• Status reports from credit agencies;
• Trade references;
• Company accounts, which can be found at Companies House;
• Register of County Court Judgments;
• Insolvency Service;
• Bank references;
• Friendly visits to the customer;
• Local intelligence (e.g. local newspapers, business networking groups).

Kate Beddington-Brown, Assistant Director General of the Institute of Credit Management and member of the Better Payment Practice Group, commented: “Extending credit to new customers without thoroughly vetting them exposes businesses to the risk of non-payment. The BPPG strongly advises companies to minimise these risks by undertaking research into new customers as part of their standard credit management procedures. Trade credit is a privilege, not an automatic right, and it is vital that companies protect themselves from risk of late payment (or bad debt) by vetting new customers properly before issuing credit.”

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