Businesses often rely on timely payments to remain afloat. Whilst this is not necessarily an advisable way to go about business, the truth is that many companies cannot afford to take any chances with their payments, which is why it is very important to understand whether you are leaving your funds in the hands of reliable clients or not. One or two late payments in a given time period may not have a big influence on the overall business transactions of a company, but when certain clients take to being routinely late, or a significant number of debtors find themselves unable to pay their dues on time, you know that your company is in trouble. To avoid such a scenario, it is important to first screen your potential clients and understand whether they will truly be able to make their payments in due time. Below are some of the most commonly used methods to assess their paying ability:
- Credit check – the easiest and most popular method to verify the reliability of a client is to simply have their credit history checked. By examining the credit rating of a specific business, you are able to see how they have upheld previous payments, and thereby gain a general idea of their trustworthiness. For example, a sole proprietorship, unlike a limited company, does not see the existence of the business as a separate entity; in this case, the credit rating of the owner of the said business can give you a general idea of how he or she will perform as a future client.
- Credit rating agencies Hong Kong – besides examining the credit rating of a specific individual or business, you can also perform a more expensive inspection into the credit history of a future client by contracting the services of a credit checking agency. Keep in mind that the process is considerably costly (though it is detailed), and as such, this method might be better left for the screening of important clients (as opposed to every client who does business with you). Check out more information by visiting http://www.cbil.com.hk/en-us/backgroundCheck.
- Pro-forma approach – lastly, there is the ‘pro-forma’ approach for those clients whom you might not be able to assess through the above-given methods. These clients are often new start-ups who have no history backing their claims up, but also whom you do not feel as if you should discount merely based on their lack of a good credit history. This approach basically asks these clients to make an upfront payment at the very start for the first few payments in the near future: their capability to pay a large sum upfront (and the fact that they have thus paid you for the coming months) can give them a better image as a reliable client.