The importance of checking credit in the companies you do business with

credit check

Business-to-business fraud is, unfortunately, a huge problem that could cost your small business a great deal of money. That is why it is important to check credit in the companies with which you do business.

Fraud in companies

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-billion dollar problem per year for United States businesses. This is reflected in money laundering, social security or misappropriation of funds.

But even if fraud is not part of this equation, checking another company's credit report is an important tool to use when extending terms to another company or making a large sale before collecting full payment up front. As a small business owner, your success depends on your customers' ability to pay their bills on time. If your customers can't pay their bills on time, keeping your cash flow at consistently healthy levels becomes difficult, and can eventually force you to go under.

Checking the company's credit

  • Recent financial disasters have shown that sometimes it's the biggest and most attractive companies that end up collapsing and bringing everyone down 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 on the outside is what you want them to see. Your credit history can reveal a different picture.
  • If you're convinced that you need to run a credit check on any company you're considering doing business with, ideally, tracking detailed credit information on up to five different businesses at once. (Obtaining a single business credit report in another business has a cost for companies that provide financial and accounting support.) It can be a good option to avoid taking risks.
  • A business credit score provides a quick summary of the information in your business credit reports. Specifically, a business credit score assesses your business's ability to make payments on time. The information used to calculate your business credit score includes public and private information that can be viewed by your suppliers, lenders, and more.
  • Before you begin, if you want to check the credit score of the other company you are doing business with, and obtain a business credit summary, you can do so with a business consulting company. They also offer access to credit reports, scores, monitoring, and fraud protection for a monthly fee.
  • You must ask yourself, how do banks do before extending credit to their customers? Before banks extend credit, they check the potential borrower's credit history and ability to pay, among other things.
  • Any company applying for credit must complete a credit application that includes basic information, such as address, contact information and tax identification number, as well as references to other companies that have granted them credit. A business is unlikely to list a contact who says something negative, but if the business is having trouble finding three or four good references, it could be a red flag.
  • Check the publicly available information. The company's social media, the press release section on its website, and information available through a simple search engine scan can help you determine if the company is having issues that may affect its ability to pay. Publicly traded companies are also required to regularly file factual reports on the status of business with the Securities and Exchange Commission. These are generally available on the company's website or through state regulatory superintendencies.
  • Use credit assessment tools. Business credit assessment tools provide different information at variable costs, and include monitoring reports. Gathering information on customer cash flow is not something you do at the beginning of a relationship, keeping an eye on issues that could affect your customers' ability to pay can help you avoid your disaster.

The importance of credit verification - final grades

Growing a successful small business involves taking precautions and risks. Checking the credit of the companies you do business with is one more step in making your story a happy one. And always remember that optionally can obtain P Subtracting in 15 minutes without collateral.

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