With a 10% increase in the number of business failures during the second quarter of 2008, small businesses need to ensure they keep an eye on suppliers and customers for any sign that they may be struggling to cope.

But it's also vital to ensure that your own credit-rating remains intact, as your own suppliers will be keeping a close watch for any evidence that all may not be well in their customer base.

"In this tough economic climate small businesses are the most vulnerable," said Nic Beishon, head of commercial solutions at credit-rating agency Equifax.

"It's crucial, therefore, that they do everything possible to ensure their own credit rating is kept as positive as possible, and this means making sure that none of their customers fall behind with payments. It only takes one customer going under to turn their own financial fortunes."

Equifax offers the following tips to ensure you retain a good business credit score and a low risk profile during the economic downturn:

  • Pay bills on time, as businesses will be looking for early signs of difficulty
  • Monitor your own business credit profile
  • File accounts on time, as any delays looks like you may have something to hide
    In this tough economic climate small businesses are the most vulnerable. It's crucial that they do everything possible to ensure their own credit rating is kept as positive as possible, and this means making sure that none of their customers fall behind with payments
  • Avoid County Court judgments, as any firm monitoring your status will view this as an early sign of financial trouble
  • Conduct credit checks on all new accounts
  • Implement data-sharing systems to monitor customers for signs of financial stress
  • Look for early warning signs, such as prompt payers suddenly falling behind on payments
  • If you suspect a customer or supplier is in trouble, run a credit check and reassess your relationship if necessary
  • Set strict deadlines on accounts that are continually overdue. Don't let unpaid invoices mount up
  • Conduct ongoing monitoring of all customers and key suppliers to quickly identify potential bad debt and act quickly to prevent it
  • Beware customers who switch to new suppliers at the point they reach their credit limit with you. This is often a sign of problems looming

"In our most recent business failures report we saw a 5.8% increase in the number of failed businesses with a zero credit limit," added Beishon.

"Any company checking on these organisations in the lead-up to their insolvency would have seen this zero rating, providing them with an important warning to only trade based on receiving upfront payments."