By National Revenue Corporation Ltd

06/24/2010 Why use Credit Checking?
We at NRC believe that Credit Checking a potential customer or existing customer’s credit worthiness is an essential tool to examine the financial status and trustworthiness before offering or extending additional credit and entering into a contractual relationship.
Many business owners and managers have experienced both the dismay of financial loss when an account goes bad and monies are lost, conversely, they breath a sigh of relief when they are paid especially when the concern level was high. Chasing bad debtors is a time consuming and expensive process. Have you considered the hidden costs of internal debt recovery? Paying staff wages, lost time when either you or your staff are not using time effectively to produce income into the business; additional administration costs of phone calls; letters; postage; stationery; printing and ultimately; strained or ruined relationships. The interesting position we encounter at NRC is that you, as a provider of goods and services may not want to ask for your money owed because you don’t want to upset the relationship. This is sometimes the case why business owners are reluctant to use a debt collector. We wonder just how upset you are when you realise how much it costs you when you are not being paid.
Calculate the loss
Perhaps you may consider the maths equation, perhaps you may consider the cost in lost productivity, and perhaps you may consider, was it worth trading in the first place? If you consider just the maths equation with regard to only the lost net profit margin. Most New Zealand businesses operate with a net profit margin under 10%. This being the case, if your net profit is, say 10% and you don’t collect it, your next 10 sales of equivalent value will be completed with no profit margin and you do it working for nothing. For example, you have a sale of $5000, net profit of $500. You would then have to make up the lost 5k as well as make up the lost $500. In other words, you need to sell, trade 5k times 10 = 55k to bring the 500 net profit times 10 to equal the original 5000.
We at NRC also promote the wisdom of doing a Credit Check with existing clients as a periodical spot check to see if the client has always paid promptly or if they have been defaulting. It is not common for any business provider to know the financial position of their customers. If asked, many business owners would say yes to having information ahead of time, especially if impending doom was lurking. If you as a business owner or credit controller had heads up information that your customer was in trouble, you could then re-position your self and reduce your exposure. NRC has a number of clients that have experience first hand the benefit of using a Credit Check. They have sometimes still chosen to trade, but the customer receives no credit or reduced credit. Please note: a Credit Check is not a guarantee of payment, but more “peace of mind”.