Credit Management is Not Credit Guesswork

26 March 2008 By Coface executive director, Michael Creighton

Credit trading has never been more risky and yet many businesses persist in offering generous credit terms to customers based on little more than trust.

The level of payment default continues to rise and yet many firms seem curiously reluctant to obtain credit insurance to protect themselves. Companies, which were seen as unshakeable, have been brought crashing down and creditors are still left to count the cost.

The message is clear. Companies must urgently recognise the heightened risks involved in credit trading and take steps to minimise them. While it is tempting to offer generous credit terms to win new business when opportunities are few and far between, there can be few more soul-destroying moments than when it emerges that a prestigious new client has still not paid for their goods 60 days after due date.

Payment default continues to pose a serious risk to companies whose credit decisions are sometimes based on incomplete information and instinct. More importantly, by working with a credit management specialist, minimising the risk does not mean limiting the opportunities for business growth. On the contrary, it can actually lead to a healthier business.

Know your trading partners

In order to minimise trading risk, businesses first need to establish effective processes to ensure no trading partners represent a significant risk.

Thorough checks should be the golden rule for any business and does not merely extend to inspecting trade references. Let’s briefly turn our attention to the major dos and don’ts:




Obtain a full name, business address and home address for the company director when dealing with non-limited companies, partnerships or sole traders. A business address could be a short-term rental or simply a mailing address.

Be convinced by a company’s web site or its entry in a telephone directory. Unscrupulous traders can ‘buy’ visibility in order to defraud customers and suppliers.


Contact the Companies and Intellectual Property Office (CIPRO) to check the status of any Limited Company. Details at: or call 0861 843 384.

Be satisfied with trade references. No company will point a supplier towards someone who will give them a bad reference.


Use a reputable agency to check/confirm credit history. Coface, are all credible resources.

Just rely on bank references. There’s often a disclaimer, which means the reference is not legally binding.


Check against the company or its directors.

Be afraid to ask for cash first. Don’t offer credit unless it’s absolutely necessary.


Ask to see the latest company accounts, if possible.

Be put off if the company uses a factor or invoice discounter. This usually means that another agency has looked at the business and concluded that it is sound.


Look for evidence that the company is trading profitably; and there is only modest gearing i.e. that its net worth is not significantly exceeded by its liabilities e.g. bank loans (this can vary from industry sector to industry sector)

Be persuaded to increase a new customer’s credit limit because they have paid their first invoice promptly and in full. Credit limits should not be extended for at least six months


Be suspicious when suddenly approached by a company which has left its preferred supplier. Ask the company’s representative why and check whether the previous supplier has been left with any bad debts.

Forget to take extra care when dealing with start-ups. Ask for personal guarantees from the Director.

By Coface executive director, Michael Creighton (pictured above right)

By Coface executive director, Michael Creighton (pictured above right)

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