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Conducting credit checks on customers during the onboarding process is crucial to mitigate the risk of bad clients impacting your business activities. With research showing that more than half of businesses in the UK still have unpaid invoices from the 2022/23 tax year, credit checking clients during onboarding is a crucial part of the Know Your Customer (KYC) process to mitigate the risk of bad clients impacting on your own activities.  

By assessing a potential client's payment history, credit checks help determine their ability to pay for services both now and in the future. This knowledge allows you to make informed decisions, focus on reliable clients, and avoid those who may not honor their payments.  

Credit checks provide insights that enable you to make additional key decisions, such as setting payment terms and credit limits. Tailoring these terms helps protect your business from slow payment or unreliable clients, reducing the risk of unpaid invoices.  

For example, if a credit check indicates a potential payment risk, you may choose to adjust payment terms or not offer credit at all. Conversely, if the credit check indicates a reliable customer, you may be more inclined to offer flexible payment options.  

Accessing credit history during onboarding improves cash flow and ensures a smoother-running business. Clients with poor credit management can ultimately jeopardise your company's financial stability if unpaid bills accumulate. While a favorable credit check is not a guarantee of future payment, thoroughly monitoring new clients' credit status is the first line of defense against bad creditors.  

Although credit checks may seem time-consuming, they are valuable in mitigating risks and saving your business from potentially expensive mistakes. By protecting your company financially, you increase the likelihood of stable profits and build stronger relationships with both suppliers and clients. 

How to credit check a customer

A credit check for new customers involves several steps:  

  • Collect Relevant Information

Gather necessary details about the customer, including their full business name, trade names, and the names of business owners. 

  • Review Credit Reports

Obtain credit reports from credit reporting agencies or credit checking agencies. These reports provide valuable information about a customer's credit history, payment habits, and existing loans. 

  • Assess Credit Scores

Credit reports often include credit scores, which represent a customer's creditworthiness. Higher scores indicate lower credit risk, while lower scores may suggest a higher risk of non-payment or financial difficulties. 

  • Consider Published Accounts

Review the customer's published accounts, if available, to gain insights into their financial health and stability. 

  • Request Bank References

Contact the customer's bank to request references, which can provide additional information about their financial stability and ability to meet obligations. 

  • Utilise Credit Checking Software

Consider using payment processing software or credit checking software that integrates with credit reporting agencies. These tools automate the credit check process, streamline operations, and provide real-time credit information. 

  • Perform Regular Credit Checks

Conduct credit checks regularly, not only for new customers but also for existing ones, to ensure ongoing creditworthiness and minimise risks. 

  • Comply with Regulations

Ensure the credit check process complies with applicable laws and regulations, such as Know Your Customer and Anti-Money Laundering (KYC and AML) requirements, which may vary depending on the jurisdiction and industry. 

By following these steps and utilising credit checking tools, businesses can make informed decisions about extending credit, set appropriate credit limits, and minimise the risk of non-payment or late payments. 

Please keep in mind that the steps and tools used for credit checks can differ depending on the business's needs and resources. It's crucial to customise the credit check process to fit the unique requirements and risk appetite of the business.   

How can payment processing software support customer credit checks

Payment processing software provide valuable support in conducting customer credit checks as many platforms offer additional features and integrations that allow businesses to assess the creditworthiness of their existing or potential customers.  

Here are some ways in which payment processing software can assist: 

  • Automated Credit Checks

Payment processing software can integrate with credit reporting agencies, allowing businesses to automatically pull credit reports and credit scores for customers. This automation reduces the need for manual credit checks and streamlines the approval process. 

  • Real-Time Credit Information

By leveraging credit checking tools within payment processing software, businesses can access up-to-date credit information about customers. This real-time data helps in assessing creditworthiness and making informed decisions about extending credit. 

  • Risk Assessment

Payment processing software can analyse credit reports and credit scores to assess the creditworthiness of customers. By considering factors such as payment history, outstanding debts, and credit utilisation, the software can provide insights into the level of risk associated with extending credit to a particular customer. 

  • Credit Limit Setting

Based on the credit information obtained through payment processing software, businesses can set appropriate credit limits for customers. This ensures that credit is extended within reasonable bounds and aligns with the customer's creditworthiness. 

  • Integration with Customer Relationship Management (CRM) Systems 

Payment processing software can integrate with CRM systems, allowing businesses to track and manage customer credit information in a centralised manner. This integration enables businesses to have a comprehensive view of customer credit history and payment behavior. 

  • Compliance and Security

Payment processing software ensures compliance with data protection regulations and maintains the security of customer credit information. It employs encryption and other security measures to safeguard sensitive data during credit checks. 

  • Streamlined Onboarding Process

By incorporating credit checks into the merchant onboarding process, payment processing software helps businesses make informed decisions about accepting new customers. This streamlining ensures that businesses are working with reliable customers who have a history of timely payments 

Payment processing software supports customer credit checks by automating the process, providing real-time credit information, assisting in risk assessment and credit limit setting, integrating with CRM systems, ensuring compliance and security, and streamlining the onboarding process.   

In summary, credit checks are essential for managing financial transactions and ensuring timely payments. By assessing creditworthiness, businesses can make informed decisions, mitigate risks, and improve cash flow. Payment processing software plays a crucial role in supporting credit checks by automating processes, providing real-time information, and streamlining operations.  

Simple, affordable pricing

No set-up fee and transaction fees as low as 4p. Customised packages available for businesses with large payments volume.