Do You Really Know Your Customer? The Importance Of Due Diligence

Securing a sale is always a win for your business - but, before you get excited about a new client or sale, it’s important to consider what happens after your contract is signed.

In many cases, your client relationship will go according to plan - but what happens if that new client delays payment or fails to adhere to your terms? In this case, the success of winning new business can turn into a financial challenge and a drain on your company. 

So how do we handle this? At Miller James, we always recommend carrying our proper due diligence to reduce the risk of late payments and outstanding invoices. By taking just a few simple steps at the beginning of any business relationship, your business can protect cash flow, reduce financial risk and avoid the need for our debt recovery services later down the line.
 

At Miller James, we regularly see cases where early-stage credit checks and a more structured onboarding process could easily have prevented problems from escalating, which is why we would recommend it to any business. This checklist is a great place to start and will help you to carry out some initial background checks.

Assessing a company’s credit risk will help you to evaluate how likely a customer is to meet their payment obligations. You can do this by reviewing their financial stability, trading history and credit behaviour. 

Agreeing clear credit terms with your customer will establish exactly when and how payments should be made, reducing the likelihood of delays or dispute. 

Setting a credit limit takes this one step further, by managing the level of financial risk by preventing customers from building up large balances that may become difficult to recover. Together, these measures come together to create an effective method of credit control for any customer.

A personal guarantee is a legal agreement where a business owner or director agrees to personally repay a debt if their company is unable to meet its payment obligations.

For newly established businesses, or higher-risk accounts, a personal guarantee can give you a safety net or added layer of protection, and will help reduce financial risk, if the worst should happen.

Businesses evolve, and financial circumstances can change over time. With this in mind, it is vital to conduct regular reviews of your customer accounts.
 
Early warning signs to look out for include slower payments, increased order volumes or structural changes within the organisation - these could all impact their ability to pay, and should be flagged at the earliest opportunity.