With one eye firmly on the current climate, credit checking those firms you expect to receive payment from is even more important to your firm’s survival.

Who should I be checking?
Late and troublesome payers are a good place to start the review. Combine this with an evaluation of the biggest clients at the top of the sales ledger and this should give you a good number to monitor. Roughly 20% of clients at the top of the sales ledger will typically owe 80% of the total ledger. Think about the effect on your agency of the unpaid debt of individual firms.

Recruiters can complete a basic check on any limited company without the company’s knowledge. But under the Data Protection Act, checks on sole traders and business partnerships are not allowed without their permission.

The recommendation for any recruiter wondering how often to credit check their clients would be to have those larger and more troublesome debtors placed onto a monitoring system as a rule of thumb. Once checked initially, new debtors coming on to the sales ledger should be checked once a quarter as standard.

Where can I get credit information?
There are a number of large reputable credit checking agencies in the UK, all of which provide real-time or online information. Costs can vary depending on the level of service required. Recruiters, however, should be wary of cheap alternatives and make sure all information they receive from the credit checking agency is as up-to-date as possible.

What are the danger signals in a credit report?
First off, recruitment agencies should review their clients’ payment profiles. While there is a time and a place for credit reference agencies, they aren’t crystal balls and, as we all know, things can change quickly. Of course, fluctuations in payment patterns should alert recruiters to
inconsistent cash flow and possible problems. Also, industry information is still important; if a client is losing a lot of contracts, it is good
to monitor the situation.

Is there an acceptable level of risk?
Acceptable levels of credit risk depend on each recruiter’s policies and its individual characteristics. Discuss your attitude to risk with your fellow directors and make sure you set the bar for your own procedures.

Occasionally, difficult decisions need to be made for clients that pose a high level of risk, and although the knock-on effect of losing a client might be damaging, it may have an even worse effect on your recruitment business if you continue to work with a client that then becomes insolvent.

TOP TIPS

• Credit checking is not an all-knowing, all-seeing crystal ball — match this information with doing some homework about your debtors too
• Talk to your fellow directors and set the bar for what you believe is an acceptable amount of credit risk when it comes to your clients
• Monitor your biggest and most inconsistent payers and check others, including new clients, on a quarterly basis
• Keep up-to-date on what yours and your clients’ industries are saying — understanding the business climate of your client may prove fruitful in terms of client and staff losses

Edward Winterton is a recruitment finance specialist at Bibby Financial Services