Lack of credit checking puts SMEs at risk, says report
THREE-quarters of small and medium sized enterprises (SMEs) have lost money as a result of a customer becoming insolvent, a new report has revealed.
Experian, the global information services company, surveyed 600 SMEs to better understand the impact of customer insolvencies in the supply chain and found that in the last five years, 76% of SMEs have lost money as a result of customers failing.
Nearly a fifth (19%) of these businesses each lost between £5,000 – £10,000, while 35% lost more than £10,000 over five years.
When asked how often credit checks were carried out 68% of SME owners said that they checked their customers’ and suppliers’ credit ratings at least once a year. Some 24% admitted that they only credit checked new customers and didn’t carry out on-going checks.
Around 38% had been running a business for over two years but had only just started carrying out regular checks, and 34% of business owners only started monitoring suppliers after they had already lost money.
Ade Potts, managing director, Experian’s SME business, UK&I, said: “Although over half of SME owners said that they did check their customers’ and suppliers’ credit ratings once a year, this is not often enough to identify potential problems.
“Waiting until you’ve lost money to do credit checks is a bit like shutting the stable door after the horse has bolted. Unless businesses check the credit status of their customers at least once every six months, they risk exposing themselves to further loss.”
