Almost half of UK businesses have lost money in the last year after trading with another company without completing adequate due diligence investigations or insisting on a signed contract, according to Creditsafe.
The business intelligence group found that less than 50 per cent of companies run a credit check before entering into an agreement with a new customer and 40 per cent don’t have a written agreement in place, a contract or even email confirmation, to ensure there is a contractual obligation for payment.
Almost three quarters (73%) of firms don’t check whether the delivery address for goods matches a registered address for that company and 67% of companies don’t even review a company’s website to check they are legitimate.
Creditsafe business development director David Knowles said: “The pressure placed on companies to deliver goods and services in a restricted time frame, without a signed contract or purchase order can be immense.
“However, even if firms do not have time to sign a contract there is no excuse for failing to complete the most basic due diligence exercises to establish whether a customer has the means to pay for the goods or services provided, or to ensure that a transaction is not fraudulent.”
Creditsafe says millions of UK businesses are putting their faith in handshake agreements; with almost one in four providing goods and services because they ‘trusted’ the people they were dealing with.
A further one in five conducted no checks because they were trading with a big company so were confident they could pay, which given the dramatic collapse of big companies such as ROK, Pontins and Connaught in the last year is a risky strategy, adds the firm.