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Why your customers’ business credit scores define how you should work with them

Kirsty McGregor Jan 24, 2024

Whether you're considering offering credit, adjusting payment terms, or implementing a credit control process, your customers' business credit scores will play a significant role in shaping your decisions. In this blog, we'll explore the importance of your customer’s business credit scores, what they signify, and how they can impact how you work with other companies. 

 

All customers are not equal

Smaller companies can learn from larger businesses in the astute way they differentiate their customer base according to demand and risk. For example, larger companies offer different prices to different segments and they certainly credit-check their customers who are paying on credit terms, before agreeing how long to give them and what their credit limit should be.
Smaller businesses should also be informed about their customers’ credit scores before deciding what risk to take around offering them credit terms. 
 

What does a business credit score actually mean?

Business credit scores are a representation of a company's creditworthiness and financial stability. These scores are used by creditors, lenders, suppliers, and other business partners to assess the risk associated with extending credit or doing business with a particular company.

Low business credit scores mean their risk of failure is higher, so businesses need to be wary about agreeing credit terms with these companies.

Credit scores combine the financial results of the company with behavioural factors around the business. For example, do they file their financial statements on time and do they pay suppliers within agreed payment terms?

Checking your own business credit score is also good practice. It demonstrates good housekeeping, governance and financial management, which will inevitably flow through the whole business. 

 

How should you trade with businesses with higher credit scores?

These businesses should give you some comfort that they are quite stable so that you are able to provide them with payment terms. 

Offering them extended credit may prove attractive and help you to increase your sales with these companies. 

However, bear in mind that credit scores can change rapidly so you should check the scores at least on a monthly basis and re-assess your risk as necessary.
 

Should I stop trading with businesses with lower credit scores?

Not necessarily, however you may want to consider whether you offer them credit terms or if you should only take orders with deposits, or full payment up front.

If you do agree to payment terms, make sure your credit control process prioritises these customers. Perhaps you could send reminders 7 days before their invoice is due for payment and as soon as their debt is overdue, escalate chasing by telephone, letter and, if necessary involve lawyers sooner than you normally would.

 

Credit Risk Manager from Capitalise keeps you in control

If you invoice multiple businesses, it can be a challenge to keep track of which customers to chase for payment and when. Credit Risk Manager allows you to connect your cloud accounting software to your Capitalise profile so you can see all your customer invoices, right next to their credit risks, allowing you to see who to prioritise. Plus with real-time alerts, you’ll know instantly if a customer has had a decline in their payment performance, a legal notice registered, or a change in their credit score, all indications that they could be in financial difficulty. This means you can act earlier to protect your cash flow, while maintaining your client relationships. 
Get started with Credit Risk Manager for free.

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