Due diligence - Credit checks

[MicrosoftBob]

Apart from cash flow phoenixing is another potential risk

Find out the directors, and find out their past history, if they keep closing down agencies and reappearing steer clear

[Scratch It]

Typically a paid for service would give you a recommended credit limit. I suspect most small agents would be very low, an awful lot lower than the typical loss to a contractor in the worst case scenario under monthly invoicing with 30 day terms.

[Safe Collections]

Are there any guidelines as to what constitutes a good or bad agency credit risk position?

An agency I'm looking at at the moment for example has 1.4m assets, 800k liabilities, 600k net worth and 10k in the bank according to free information as of Q3 last year. I'm guessing there's a revolving factoring fund of some kind plus some premises (1 satisfied & 3 current mortgages) and it's a pretty old company.

Most agencies will give a score out of 100 or use a traffic light system. The problem with looking at the accounts yourself is that unless you understand the industry and company set up you could well draw false conclusions.

Plenty of businesses appear as insolvent on paper year after year but somehow manage to continue trading despite being "in the red". You can get some very basic info from here

[rob s]

Are there any guidelines as to what constitutes a good or bad agency credit risk position?

An agency I'm looking at at the moment for example has 1.4m assets, 800k liabilities, 600k net worth and 10k in the bank according to free information as of Q3 last year. I'm guessing there's a revolving factoring fund of some kind plus some premises (1 satisfied & 3 current mortgages) and it's a pretty old company.

[Safe Collections]

Yes, I wont mention the service that I did have access to though it did describe details such as average days late for paying invoices etc which would be really helpful in assessing how difficult the invoicing process may be. I suspect that you might be right all things considered in terms of the cost especially when the cost of a client not paying could be pretty significant.

I'm doing my own due diligence and preparing myself for contracting over the next couple of years, though would it be reasonable to ask a client to pay weekly etc if evidence of poor payment practices are evident? this is common practice within BTB sales (credit limits, altered payment terms etc) so don't see why at least in principle this should be considered for contractors too.

Absolutely! Just because you are a contractor doesn't mean that the normal business considerations should go out the window

In fact if anything as a contractor, you need to be even more on the ball as far as credit risk goes than an SME as it will likely have a much larger impact on your personal finances.

[Scratch It]

Always credit check! Otherwise you are doing business in the dark and that is never a good thing...

As far as free solutions go, most of them are at best a little outdated as far as the information is concerned. Duedil.com isn't bad (for a free service) and gives quite a lot of info in the basic report, but we would generally recommend sourcing a paid report from either Experian, Equifax or D&B.

You can pick up a subscription for a couple of hundred pounds a year and in our view this is one expense you definitely shouldn't skimp on

Yes, I wont mention the service that I did have access to though it did describe details such as average days late for paying invoices etc which would be really helpful in assessing how difficult the invoicing process may be. I suspect that you might be right all things considered in terms of the cost especially when the cost of a client not paying could be pretty significant.

I'm doing my own due diligence and preparing myself for contracting over the next couple of years, though would it be reasonable to ask a client to pay weekly etc if evidence of poor payment practices are evident? this is common practice within BTB sales (credit limits, altered payment terms etc) so don't see why at least in principle this should be considered for contractors too.

[Safe Collections]

Hi,

What are peoples process when accepting work with an unfamiliar agency/client? Do you complete full credit checks on both parties or use free online resources? Previously I've had access to paid for reports and the free ones don't appear to have the same quality of information. I wouldn't want to waste money in areas where not required though to me , personally, it feels like a no brainer. interested in other people processes.

Always credit check! Otherwise you are doing business in the dark and that is never a good thing...

As far as free solutions go, most of them are at best a little outdated as far as the information is concerned. Duedil.com isn't bad (for a free service) and gives quite a lot of info in the basic report, but we would generally recommend sourcing a paid report from either Experian, Equifax or D&B.

You can pick up a subscription for a couple of hundred pounds a year and in our view this is one expense you definitely shouldn't skimp on

[Scratch It]

Hi,

What are peoples process when accepting work with an unfamiliar agency/client? Do you complete full credit checks on both parties or use free online resources? Previously I've had access to paid for reports and the free ones don't appear to have the same quality of information. I wouldn't want to waste money in areas where not required though to me , personally, it feels like a no brainer. interested in other people processes.