Importance of Assessing Customer Credit Reports

by Kristen White Blogger Taking on new business customers without credible information can put your business at risk. You need to check the creditworthiness of the customers to determine their financial situation.

A great way to attract new business is to extending credit to business partners and customers. Customers can purchase services or goods from you and pay later when completing B2B transactions. This not only encourages sales but also stimulates business growth. However, it is also extremely risky if you do not perform proper business checks beforehand.

Since dealing with invoice disputes, late payments and bad debt write-offs are expensive and time-consuming, most businesses rely on business credit reports online to get the information they need to determine whether or not to grant credit to business customers.

Most importantly, monitoring suppliers, partners, and customers' credit activity also alert you on potential risks that can damage your business. Before extending credit, it is important to determining the customer’s creditworthiness because it lowers your financial risk.

What is Customer Creditworthiness, and how does one determine it?

Creditworthiness is the capability of your business customers to pay you before extending trade credit. A customer's creditworthiness can be determined by checking their credit score so you know if they have a reputation for paying on time and have the ability to continue to do so. This also includes any outstanding obligations and revenue of the customer.

It is critical that you understand how to find creditworthiness because it can affect your business financially long-term. The customer's future business prospects within their industry, along with how they are following the trends, could influence their ability to pay you.

Details Contained in a Business Credit Profile

Before you check a business customer’s credit, you must understand the information in a business’s credit report so you understand how things are being evaluated. In addition to basic details like key personnel, branch locations, subsidiaries, parent companies and corporate addresses, a business credit profile contains the following information:

• Suppliers
• Credit cards
• Utilities
• Bank and other financial institutions
• Other creditors
• Past due accounts
• Outstanding balances
• Terms
• Payment history
• When the accounts were opened

Apart from these, there is some credit profile information taken from the county, state, and federal records, which includes some unfavorable details like:

• Court judgments
• Lawsuits
• Tax liens
• Bankruptcies

Typically, the credit score is rated from 1 to 100. The higher the value, the lower the risk. Some credit profiles also include financial stability ratings that indicate whether the customer is likely to experience bankruptcy or financial distress in the near future.

How is the Creditworthiness of a Business Customer Checked?

To protect your business from non-payment or late payments on invoices, you should utilize a professional company that can provide you with trusted business credit reports. They provide the right tools and workforce that can create a new, flexible, and more economical way to deliver business credit reports to you.

The following are some ways to determine the creditworthiness of prospective business customers:

1. Assess the customer's financial health based on their previous dealings by seeing if there are any late or non-payments on invoices with other businesses. This can determine whether the business is working full-fledge, delivering services and products to its customers.
2. One can run a credit report and review a business’s credit score. The report will illustrate its payment history and its ability to pay invoices. It will provide you with a complete profile of the business, including financial data like credit limits, invoice activity and annual sales.  
3. You should ask for references before extending credit to a customer. This also includes finding a business’s purchasing or credit limit.

Make sure that you are extending credit to customers who tick all the boxes when it comes to creditworthiness.

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Created on Dec 21st 2020 02:14. Viewed 226 times.

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