Carole Hughes, managing director at debt collection agency Daniels Silverman, warns SMEs to be diligent and to perform customer credit checks in the run up to Christmas.

As the Christmas season goes into full swing and businesses and consumers rush to beat the VAT increase, many SMEs will neglect credit checking procedures. However, they do so at their peril and will pay the price later as customers default on payments for goods received in December.

A sale is not a sale until paid in full. However, we see many SMEs that, buoyed by the prospect of a sale, have failed to follow fundamental credit checks to ensure they are dealing with a reputable company or individual, capable of fulfilling the payment terms agreed at sale.

In many cases, issues with non-payment can be resolved amicably, but we also see many cases of fraud and where customers have misled companies as to their ability to pay. Failing to carry out basic credit checks can be expensive, for example; a company working on a 20% profit margin which incurs a bad debt of 20,000 will need fully paid up new sales of 100,000 to recover from the loss;

Credit checking tips for opening up new customer accounts include:

Have a comprehensive credit application form for every new customer This should include a section for the age and type of business, company registration number and full proprietor's/partners'/directors'; names, personal addresses, email and contact numbers.

Ask for a copy of your customer's standard letterhead and check all details match up. Watch out for the small print contained in the header or footer section which, under the Companies Act, must specify the Company's full name, registered number and registered office. Many professional debtors try to avoid creditors by using trading names which are different to their legal registered company title.

Credit check both the business and the partners/directors personally.

This may show a previous history of dissolved or liquidated companies which should start the alarm bells ringing.

For existing customers, Daniels Silverman recommends:

Repeat the credit checking process from time to time. This will identify changes in their circumstances which may affect their ability to pay.

Put important high value customers on continuous monitoring. This service, typically offered by credit reference agencies at little or no cost, will alert you to any changes recorded against your customer.