How Do You Asses The Financial Health Of Your Clients?

We never like to think about it, but even the most profitable businesses in the world can run into financial difficulties every now and then. The last year and a half of difficulties has shown us all how easily and quickly things can change. That’s just one of the reasons it’s important for you to regularly monitor the financial health of your clients, starting at the very beginning. In today’s blog, we share a few tactics you could use to monitor the creditworthiness of your customers and protect your cash flow from late payments.

Account Opening Forms

If you don’t already, make sure you’re having all new customers fill in an account opening form before they sign up with you. This allows you to gather all the information you need about a customer right at the beginning. It also means you know exactly who you’re selling to, and have all the information you need to recover invoices in the event they aren’t paid on time.

Credit Reports

Even if you’re not extending lines of credit to your customers, you should run a credit check on all new customers. They can provide valuable insights into the financial state of your customers, their trading habits and their ability to pay you. You can also use credit reports throughout long-term client relationships so that you can be sure they are still stable and that you don’t miss any sudden changes.

Filed Accounts

Every UK company is required to file annual accounts with HMRC, and once filed the abridged version of these are available to the public on their website. So before signing up a new customer, do a search on Companies House and look at their filed accounts. This will give you an overview of the last few years of finances, and you can also look out for red flags like late filings.

Watch For Sudden Changes

All businesses will change and morph over time, especially in times like this, where the pandemic has caused a lot of businesses to shift focus out of necessity. But some changes should be indicators of financial difficulties. For example, sudden changes to buying patterns, sudden stock or asset sales, or even reduced service levels.

At Debtcol, we work closely with businesses of all sizes to monitor the financial health of their clients. We can do this on a one-off or an ongoing basis, and can be flexible to suit your requirements. If you’d like to be able to predict client financial problems before they become problems, we’d love to help. Just get in touch with us today for more information.