Many start-ups and SMEs continue to underestimate the financial consequences of bad debts and payment delays and do not implement targeted measures. In a serious of blog entries, we answer the most important FAQs on this topic.
What options do I have to check the creditworthiness of customers and what requirements must be met?
The creditworthiness of customers is usually checked with the help of credit agencies or bank information.
If credit agencies are contacted, it is usually sufficient to conclude an agreement with them. For a fee the creditworthiness of a company can then be checked. Some credit agencies, such as e.g. Creditreform in Germany, require a fee-based membership. Other credit agencies offer their services without membership.
If a bank inquiry is to be obtained, the customer’s consent is required. Business customers usually grant this permission automatically when they set up their account. If this is not the case, one should at least become suspicious. Because either the customer wants to conceal something, such as payment problems, or he generally wants to reveal as little about himself as possible.
The customer should then be asked to inform the bank that in the specific case he/she does grant permission to carry out a credit assessment. If the customer still refuses, one should refrain from the order or insist on advance payment. Private customers must expressly agree to receive information about what should be addressed or clarified in advance of a business relationship. Almost always a “legitimate interest” must be proven, e.g. the intention to initiate a business relationship.
And, of course, there is also the possibility of having a new customer provide references (companies, persons) that can be asked about the payment behaviour and business conduct of the potential customer.
Since a credit check involves costs and time: At what point is it worthwhile to subject a customer to a credit check?
It is certainly not possible to make a blanket statement here as to when an examination is worthwhile. Every company must determine for itself from what sales volume it wants to audit a customer and whether it also wants to audit existing customers, for example, once a year.
In principle, audits are also recommended for smaller amounts, since a loss usually exceeds the costs:
Depending on the credit agency, credit checks cost about €5-15 per check for domestic companies. For foreign credit reports, significantly higher amounts per report are also possible.
Bank information costs about 20 € per query.
Some credit agencies require membership, which can cost several hundred euros per year.
There are also credit agencies that offer a “flat rate”. With this one has therefore the possibility to do as many checks as one likes – even multiple ones of a single company or customer – for a monthly or annual fee.
The amount of time required is usually kept within limits, and often an examination only takes a few minutes.
