The importance of credit checks when onboarding clients

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Written by Editorial Team

Published January 2020

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With recent figures estimating that unpaid invoices across the UK totalling £51.5 billion, credit checking clients during onboarding is a crucial part of the KYC process to mitigate the risk of bad clients impacting on your own activities.

Ensuring that potential clients will be able to pay for services is at the core of a sound onboarding practice. Credit checking will give you access to a client’s payment history, which will help you judge their ability to pay, both now and in the future. Knowing a potential client’s payment patterns could save your organisation significant money – and time - going forward and give you more confidence in the stability of their custom.

Credit checking when onboarding clients gives you the insights you need to make an informed decision on whether to continue with the client; allowing you to focus on those who are able to honour payments, while avoiding those who won’t.

With knowledge on how a potential client manages financial responsibilities, you will be better placed to make additional key decisions such as payment terms and credit limits, which might need to be adjusted for different clients. By tailoring payment terms, you help to protect your business from slow payment or unreliable clients and reduce the risk of hefty unpaid invoices.

For example, depending on the nature of your business, if credit checking indicates that a customer is a potential payment risk, you may choose to front load the payment terms, or perhaps not offer credit at all. If the credit check indicates the customer will be reliable, you may be more inclined to offer to spread payments over a period of months or even years.

Accessing credit history at the onboarding stage boosts cash flow and ensures a smoother-run business. Clients with poor credit management could ultimate force your company into bankruptcy if unpaid bills begin to mount up, leaving you unable to pay your own suppliers.

Of course, a favourable client credit check during onboarding is no guarantee that a client will continue to pay in the future, but thoroughly monitoring new clients’ status is the first line of defence against bad creditors.

While it might seem a time-consuming process to credit check clients, adding additional bulk to the onboarding process, credit checks are valuable because they can mitigate risks and save your business from potentially expensive mistakes. By protecting your company financially, you help increase the likelihood of your business enjoying more stable profit in the future, allowing you to build stronger lasting relationships with both your own suppliers and the clients themselves.

 

If the information contained in this blog has piqued your interest in credit checking and client authentication, take a look at our fraud and risk management tool – Optimise Verify.

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