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5 ways to work with customers with bad business credit

Capitalise Feb 08, 2024

If you work with other companies, it’s not uncommon that you’ll encounter a customer with a low business credit score. Unfortunately, this situation can pose challenges, leading to delayed payments and potential financial strain for your business. According to recent research, small businesses in the UK are currently missing out on a staggering £7.4 billion due to unpaid invoices. To navigate these difficulties and protect your business, it's important that you can adopt effective strategies when dealing with customers who have low business credit scores. In this blog, we'll explore some key steps you can take to mitigate the risks associated with these customers.

 

What is a low business credit score?

Depending on the credit bureau, how a business credit score is calculated can vary. 
Experian business credit scores range from 0-100 where 0 is the highest risk and 100 is the least risk. They are also grouped into bands from A-G, where A is the best. 

If a customer has a score of 80 or higher, this would be considered a good business credit score. On the other hand, if a customer has a credit score below 50 and below a ‘D’ banding, this would be considered low.

 

Tips for working with low credit score customers 

It’s unlikely you will be able to avoid working with low credit score customers altogether, so to best protect your business here’s 5 useful tips:

 

1. Ask for payment upfront

One of the most straightforward ways to minimise the impact of customers with low business credit scores is to request payment upfront. This approach reduces the risk of late or non-payment, as you receive your funds before providing goods or services. While this may not always be feasible, it's an option worth considering, especially when dealing with high-risk clients.

 

2. Set realistic credit terms

It might not always be possible to ask for payment upfront, particularly if you don’t want to lose out on business. In these circumstances it’s important that you don't offer too much credit or extended terms to customers with low business credit scores. 

When offering credit, consider an amount based on their suggested credit limit. When you run a company credit check with Capitalise, you’ll be able to clearly see in £ the maximum amount you should extend, as recommended by Experian. This limits your exposure to potential losses in case of non-payment.

If you have already extended credit to a customer, you can check your outstanding invoices against their credit limit using Credit Risk Manager. This will help to see whether or not you’ve overextended yourself, so you’ll know whether an invoice needs to be prioritised in chasing.  

 

3. Make sure your credit control is effective

Effective credit control is crucial for dealing with customers of varying creditworthiness. It involves setting clear credit terms, monitoring payment behaviour, and taking action when necessary. Here are steps you can follow to enhance your credit control processes:

 

Clear payment terms on your invoice

It’s important that your invoice includes all necessary details so that there is no confusion or ambiguity which could further delay payment. Make sure the invoice clearly states the payment due date, amount due and method of payment. Use an invoice template to ensure you have the correct information included.  

Establish late payment terms or early repayment discounts

Clearly outlining late payment penalties or offering early repayment discounts in your invoices encourages customers to pay on time or even ahead of schedule.

Send reminders before the invoice is due 

Proactive communication is key when you have outstanding invoices. Make sure to send friendly reminders to your customers seven days before the invoice due date. This reminds them of their obligation and gives them a chance to prepare for payment.

Chase by phone if needed

If an invoice remains unpaid after the due date, don't hesitate to follow up with a phone call. Sometimes, a friendly conversation can resolve misunderstandings or prompt faster payment.

Keep track of credit profile changes

Continuously monitor your customer's credit profile for any changes that could signal financial instability. If you notice adverse developments, such as worsening payment performance, or a CCJ registered, be prepared to take action, which may include debt collection.

 

4. Build stronger relationships

Building strong relationships can lead to more reliable payments, so it's important to maintain open lines of communication with your customers, including those with low business credit scores. It's good practice to encourage dialogue, listen to their concerns, and try to find mutually beneficial solutions in the event that financial challenges arise.
 

5. Know when to consider debt recovery 

When working with customers with low business credit scores, it’s important to keep track of invoice due dates and take action quickly if they’re overdue with no communication or payment. If an invoice is 30 days overdue, this is considered late and you may want to consider debt recovery at this stage. You may also want to consider debt recovery if a customer’s business credit score is declining, or if they have a legal notice registered as these are signs the business could be in financial difficulty.  
 

Dealing with customers with low business credit scores can be challenging, but it's essential you know how to for the financial health and sustainability of your business. By implementing these strategies, you can minimise the impact of late payments and reduce the risk of non-payment.

Action: Check company credit scores of your customers.

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