The importance of checking the credit in the companies with which you do business
Unfortunately, business-to-business fraud is a big problem that could cost your small business a lot of money. That is why it is important to verify the credit in the companies with which you do business.
Business to business fraud
We are used to hearing stories about scammed consumers, but how often do we hear that companies defraud other companies? Business to business fraud is a multi-million dollar problem per year for companies in Spain. This is reflected in money laundering, social security or embezzlement.
But even if fraud is not part of this equation, consulting another company’s credit report is an important tool that should be used when you extend the terms to another company or make a large sale before charging the full payment in advance. As a small business owner, your success depends on the ability of customers to pay their bills on time. If your customers can not pay their bills on time, keeping your cash flow at consistently healthy levels becomes difficult, and eventually can force you to sink.
Verifying the credit of the company
- Recent financial disasters have shown that sometimes they are the biggest and most attractive companies that end up collapsing and demolishing everyone with them. No matter how good you think your relationship with a potential business partner is, you should always keep in mind that what you see abroad is what you want to see. Your credit history may reveal a different image.
- If you are convinced that you need to perform a credit check on any company you are considering doing business with, it is best to track detailed credit information on up to five different businesses at a time. (Obtaining a single business credit report in another business has a cost for companies that provide support in accounting and finance). It is very good can be a good option to not take risks.
- A business credit score provides a quick summary of the information in your business credit reports. Specifically, a business credit score assesses your company’s ability to make payments on time. The information used to calculate your business credit score includes public and private information that your suppliers, lenders and more can see.
- Before you start, if you want to verify the credit score of the other company with which you are going to do business, and obtain a summary of commercial credit, you can do so with a business advisory company. They also offer access to credit reports, scores, monitoring and protection against fraud for a monthly fee.
- Surely you must ask yourself, how do banks do before extending credit to their customers? Before banks extend the credit, they check the credit history of the prospective borrower and the ability to pay, among other things.
- Every company that requests credit must complete a credit application that includes basic information, such as address, contact information and tax identification number, as well as references of other companies that have given them credit. A business is unlikely to list a contact that says something negative, but if the company has trouble finding three or four good references, it could be a red flag.
- Verify publicly available information. The company’s social networks, the press releases section on its website and the information available through a simple search engine can help you determine if the company is having problems that may affect your ability to pay. Companies that are listed on the stock exchange must also submit regular reports full of facts about the state of the business with the Securities and Exchange Commission. These are generally available on the company’s website or through the state regulatory superintendencies.
- Use credit assessment tools. The business credit assessment tools provide different information at variable costs, and include monitoring reports. Gathering information about clients ‘cash flow is not something that is done at the beginning of a relationship; monitoring problems that could affect your customers’ ability to pay can help you avoid disaster.
Growing a successful small business involves taking precautions and risks. Controlling the credit of the companies with which you do business is one more step to make your story happy. And remember that optionally you can always get urgent loans without endorsement .
The importance of checking the credit in the companies with which you do business Rate this publication