I have had a couple of clients and prospect ask about commercial credit checks this week, more specifically whether they can run regular credit checks on key clients.
The answer is “it depends”.
Unless your account application specifically says you are authorised to run a credit check, you can only do so AFTER the client has defaulted and it’s passed to collection. The collection agency will, depending on the size and type of default, run a credit check in most cases. That’s a little bit late and not really going to help you.
So your account application has to say a credit check will be done. And if it doesn’t you are exposing your business to risk. Trade references are simply not enough.
As for regular checks, again, this needs to be specified as part of the client onboarding on the application form and in your terms of trade. You must also ensure it is not excessive. Once a year or if a very large order has been placed is reasonable, monthly is not.
Getting authorisation wrong can result in fines or even a law suit as every “search” shows up on the debtor’s credit report.
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