Whatever the value of your products or services, the likelihood is that at some stage you’ll be faced with deciding whether or not to offer credit to a customer you don’t know very well. Checking them out could prevent a future bad debt.

Initially, it’s always worth listening to the grapevine. People talk and nothing travels faster than bad news. Talk to other suppliers with whom these prospects may have had dealings. Even talk to your competition if you are on good terms with them. After all, you would reciprocate – wouldn’t you?

Bank references can be of some value, though this can often be limited. They may say something along the lines of ‘should prove good for normal business engagements/credit of xxx pounds a month’. But if the report says ‘Your figures are larger than we would normally expect to see,’ this indicates that the amount you were enquiring about may put a strain on the account holder’s resources. Be wary of references reading ‘Resources fully committed’ or ‘Unable to speak for your figures’.

Trade references can also be of value though this is, again, limited because shaky businesses often try to keep on the right side of a handful of suppliers for trade reference purposes.

When taking references you can ask some or all of the following questions:

• Are you associated with the company at all?
• How long have you traded with them?
• Are you currently trading with them?
• What is the maximum credit you have extended to this firm in one month?
• What are your payment terms?
• Compared with these terms, are the customer’s payments prompt, reasonable, slow or poor?
• Have you had to take any final collection action in the last six months?
• Is there any other relevant information you think we should know?