Why should you run credit checks on your customers?
For any business offering credit or lending money, running financial checks on those accessing the service is vital. It is a necessary and effective way to assess any financial risk a potential customer represents and provide helpful insight into whether credit should be offered based on background payment habits.
Credit checks can be made on individuals and businesses, which are a vital part of the onboarding process. Whether credit checks are being made as part of new customer onboarding, it pays to run them regularly. When you require more details on KNOW YOUR CUSTOMER processes for your business, take a look at W2, a provider of KNOW YOUR CUSTOMER solutions.
Credit-checking customers are essential for several reasons. Firstly, potential risks can be quickly identified at the onboarding stage. A person’s credit rating and payment history are vital indicators of their ability to repay a loan. Regular checks can also determine if an existing customer is experiencing a period of hardship, for example. Businesses want to protect themselves from excessive financial risk, and customers should not be able to increase their debt when they can’t afford it.
Therefore, there are multiple benefits to credit-checking customers. Of course, for many industries, the ability to increase credit to long-term customers and extend it to newcomers is essential. If a customer falls into arrears, it is vital to find out why. A credit report will provide a more comprehensive idea of a customer’s ability to meet their obligations. With this knowledge, correct terms and limits can be applied.