Benefits of business credit checks

Business credit check

In the modern business world, making quick, smart business decisions ensures that you stay ahead of the competition. But making the right decisions can be quite difficult when you don’t have the right kind of information at hand. Credit-checking businesses of interest ensures that you have accurate financial information on the businesses you are transacting with to help you make sound financial decisions.

Conducting a business credit check on a new customer can provide vital information on their debt payment history that will help you avoid making financial mistakes. Big businesses and banks have been doing this for a long time with their customers to ensure that they are paid back the money they give out either in cash or tied to goods and services provided.

Here are ways in which you can benefit from business credit checks:

  1. Knowing your customer.  
    It’s a good idea to find out some information about the company you are planning to do business with before getting into a business relationship with them. Conducting a credit check will help you fill some of the blanks while giving you an understanding of what kind of company you are dealing with and their current credit situation. And since it’s important that you get paid your due after providing goods or services on credit, credit checking will help you increase the chances of that happening. 
     
  2. Risk reduction.
    It’s always a risk selling products on credit, but it’s something we can’t avoid as most transactions between businesses are carried out under these terms. Since it can’t be avoided, if you want to make your business competitive, the best you can do is minimise the risk of bad debts. Credit checking gives you a clear picture of your would-be debtors’ ability to pay and to do so on time. A company might look healthy on the surface but in reality could be in crippling debt which would affect their ability to pay you. 
     
  3. Improving cash flow.
    Maintaining a positive cash flow is all about forecasting and proper planning. By checking a customer’s credit score before selling to them on credit, you will be able to determine (with significant accuracy) the ability of your debtor to pay you on time. This way you can budget properly and control spending to ensure that your business has adequate liquidity to meet day to day financial needs as you await payment. 
     
  4. Identifying opportunities.
    Credit checking is not only limited to looking for negative things, it can also be used to find good things as well. With credit checks, you can find out whether a customer can take out more credit and still be able to pay comfortably. This way you can create incentives such as bulk discounts to encourage low-risk customers to buy more from you helping your business grow and forge stronger relationships with its customers. 
     
  5. Avoiding fraud.
    Where money is involved, there’s bound to be some unscrupulous people looking for shortcuts to get it. Conducting a credit check on a potential customer helps you establish their legitimacy and avoid handing out your goods or services to con artists or making wrong deals.

In addition to credit checking new customers, old customers should also be checked regularly to keep yourself abreast with their changing financial circumstances. 

 

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Ashley Bryan's picture

Ashley is owner and GM of Webstrategies a website optimisation company providing optimisation services for clients throughout Australia and New Zealand, Ashley writes business related articles and blog posts.