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The simple guide to understanding your customers’ financial health

The simple guide to understanding your customers’ financial health

Risk is a normal part of doing business, but unnecessary financial risk can be stressful and costly. Credit ratings are designed to minimise this risk for small businesses like yours and lenders too.

It’s vital to know how well your clients and customers pay off their debts if you’re going to invoice them for services. If they have a history of late payments - or worse, non-payments - they could pay you late too.

Whatever a business’ creditworthiness, it’s helpful for other businesses to know what it is before they work with them, and during their working relationship. Otherwise, invoices can be paid late (or not at all!) and operations slow down. 

This is obviously bad news for your business. The longer you wait around for invoices to be paid, the more your cash flow will suffer. In 2018, the annual cost of recovering overdue cash averaged £9,000 for SMEs

What does ‘creditworthiness’ mean?

A business’ creditworthiness is based on how likely or unlikely they are to be able to pay off their debts - it basically works like your personal credit score. Lenders will look at this before they decide how much to lend and what interest rates and repayment terms to apply, so they can minimise risk as much as possible. The lower the credit score, the more likely it is a business will struggle to pay off their debt.

Helpful tip!

It’s handy to know your own business credit score too, because it highlights what risk is already attached to your business in the eyes of lenders (if any!). It can take time for an SME to build up a strong credit rating. According to Experian, “businesses in the South West have the strongest average business credit scores in Britain, while London ranks as the lowest”. 

Business creditworthiness is based on:

  • Credit repayment history
    If past credit has been paid off on time and in full.
  • Defaults and late payments
    If previous payments have been missed completely or paid late. The more late payments, the more the credit score can be affected
  • Debt to income ratios
    How much debt a business already has to pay off, compared to how much revenue is coming in.
  • General financial standing
    This includes financial statements, profits, expenses, the business’ age, and more.

How to trade safely and protect your invoices

There are simple things your business can do to keep cash flow and client relationships healthy. Credit control has to be strict - that means sending invoices promptly, making sure all the information is visible and clear, chasing clients as soon as invoices are due, and letting your client know you’re going to keep on top of it.

With Hokodo, your business can be covered for unpaid invoices in seconds. If one of your clients doesn’t pay up, you’ll get 90% of the value of the invoice. 


Getting paid should be easy. Hokodo insurance solutions have got you covered, so you can focus on what matters most - your business’ growth!
Check your customers’ credit scores instantly.