You are running a successful business and everything seems to be going just fine until suddenly your customers are not paying you as quickly as they used to. This hurts your cash flow and makes it more difficult for you to pay your bills. Suppliers start to get nervous and stop shipping products. You have less merchandise to sell, and now you are struggling to keep your doors open.
It is a more common scenario than you might think. Lack of sales and cash flow are the top two reasons businesses close. You may be doing everything right, but it does not mean your customers are, and unfortunately, their financial troubles could quickly become yours.
Managing Your Cash Flow
Good cash flow is essential to the financial health of your business. Successfully managing your cash flow requires four steps:
- Control your inventory – You need enough inventory on hand to meet customer demand, but excess inventory ties up cash that could be put to better use.
- Collect your receivables – Keep a close eye on what you are owed. It is easy to let things slide, but it comes with a high cost.
- Be careful with extensions of credit – Manage your credit risk closely. Think twice before extending credit to someone who is always late paying their bills or has financial problems.
- Manage customers who do not pay – When customers do not pay within a reasonable amount of time and ignore your collections efforts, it is time to end the relationship.
Protect Yourself Against Slow-Pay and No-Pay Customers
Regularly reviewing a credit report for business purposes can help you see the warning signs when a customer or potential customer is struggling financially.
Business credit reporting agencies collect information about companies, including historical information, public records, and public filings. They can also project repayment risks, predict financial stability, and provide detailed information on things like:
- How quickly a company pays its bills
- How big a risk you are taking by extending credit
- Tradeline information
- How much debt a company has and the terms
- Income statements and balance sheets for publicly traded companies
These are just some of the things business credit reports track and are available for you to see.
Protect Yourself Against Bankruptcies
Business credit reports can also protect you from getting caught in the middle of bankruptcies.
When a company goes bankrupt and owes you money, if you are an unsecured creditor, your outstanding debt is the last priority for payment. Courts typically grant preferential status to preferred creditors, such as employees or taxing bodies, followed by secured creditors. These are lenders that have liens on a debtor’s property. The last people to get paid are the unsecured creditors, such as those providing goods or services.
Business credit reporting can give you an early alert that a company is having serious financial problems. If a lien or judgment is filed against a business or if bankruptcy proceedings are underway, it will show on a business credit report.
An early warning is essential as creditors are often paid in the order in which they file claims. If you wait too long, you may be too far back in line to get what you are owed.
Compare Business Credit Reports
Business credit reports provide you with an overall score that indicates creditworthiness along with a basic risk assessment. Depending on the report you choose, you can also receive information about:
Bankruptcies, liens, and judgments
- UCC filings
- Creditor balances
- Credit limit recommendations
- Repayment risk, including slow pays and days beyond terms (DBT)
- Financial stability and viability over the next 12 months
- Tradelines, credit limits, and terms
- Comparison to industry benchmarks
All this information can help you determine the amount of risk you are comfortable with for each customer, who to target more aggressively for collections, and how to protect your cash flow.
The three major business credit reporting agencies provide different types of credit reports depending on your needs. Therefore, you should compare business credit reports from Dun & Bradstreet, Equifax, and Experian to see which best fits your needs.
Buy Business Credit Reports Instantly
Pulling a business credit report on a customer is simple and easy. Go to href=”commandcredit.com/accredit, choose the report with the information you need, search for the business you are inquiring on, and then click and download your credit report instantly. There is no waiting and no need to sign up for a long-term subscription.
It is a smart idea to periodically pull credit reports for business customers that have significant amounts of credit, that consistently pay you late, or that give you the feeling that something is not quite right. Trust your instincts and protect yourself. You will have the financial information you need to make better business decisions.
Search and select business credit reports from Dun & Bradstreet, Equifax, and Experian.