The importance of credit screening

The desire to build your customer base may often lead to a direct mail or telemarketing campaign in order to try and generate interest in your business. Unfortunately without a proper credit screening you may often find yourself with customers who don't pay and end up spending more money than you actually originally intend to generate.

The best way to avoid the chance of incurring bad debt is to pre-screen the creditworthiness of potential customers prior to marketing to them. By pre-screening, you effectively clear your marketing list of those customers with poor payment history and can focus your marketing efforts on gaining those who pay on time. Customers are vital to the success of your business but customers who don't pay offer you no value.

Credit reporting  agencies offer the best and easiest way to pre-screen your potential customers. By providing these agencies with the list of people you intend to market to, they are capable of determining the risk and payment profile of each individual prospect. This leaves you free to market only to those prospects who meet your required level of risk.

However, it is possible to pre-screen prospects yourself based on the profile of your current good customers, but this alternative is often less decisive and more risky. Your good customers will be the profitable ones who pay on time and you should aim to target prospects with a similar profile to theirs.

The best way to define the profile of an ideal prospect is to look at your current customer base and define the consistent key characteristics:

  • Age
  • Location
  • Timeliness of bill paying
  • Current financial position
  • Size of the company (revenue and employee size)
  • Industry they operate in

This information will then build the profile of your ideal customer and allow you to target prospects with similar attributes.

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