UK Companies Urged to Check Credit History of Clients
Almost 85% of UK small and medium enterprises (SMEs) operating internationally do not check the credit history of potential overseas customers or suppliers to verify whether a company is reputable, according to research by Experian.
The global information services company’s findings coincide with the launch of Experian’s SME Reputation Index, a survey of over 500 financial decision makers in SMEs across the UK. The Index illustrates attitudes towards safeguarding financial reputation.
It shows that with the UK economy out of recession, two out of five (39%) senior decision makers at UK SMEs are firmly focused on increasing sales and profitability to grow the bottom line, compared to just 8% who are choosing to cut costs. Thirty per cent of SMEs will also be seeking out new customers to drive that growth, particularly younger firms who have been in operation for less than five years.
However, for those companies looking to expand by finding new markets overseas, it would seem that the same rules do not apply when doing business internationally, as they would at home. Among SMEs operating internationally, only 16% check the credit history of potential overseas partners. This compares to 55% of all small and medium sized businesses operating in the UK and 28% of micro businesses who check the credit reports of suppliers before doing business with them.
The survey finds that 56% of SMEs trading overseas assess businesses through relationship building. Forty seven per cent say they gauge reputation by visiting their website, with 36% checking their customer references and credentials. A quarter of SMEs rely simply on undertaking desk research to compare a business with its competitors.
“It would seem that in many cases the same rules of business that UK SMEs operate at home do not necessarily apply once they start doing business overseas, leaving them exposed to unnecessary risks and potential damage to their reputation,” said Ade Potts, managing director of Experian’s SME business.
“While business culture differs from country to country, the fundamentals of ensuring a customer or supplier is financially sound and has the ability to pay on time still stand. Businesses should apply the same level of rigour to their relationships as they would when doing business in the UK, for example, checking supplier and customer credit reports to ensure they continue to not only survive, but thrive.”
Experian adds that SMEs should also consider the following when taking on new suppliers and customers overseas: