Planning to Offer Credit? Don’t Forget to Run a Credit Check!
The need to perform a credit check before you offer a line of credit to a consumer may go without saying. However, if you plan to offer a credit line to a business so that they may have access to your services, you may be tempted to skip it. Don’t skip it. Make sure that you run a business credit check.
Business Credit Checks Are a Necessity
When you offer business to business services, a business credit check is a necessity if your clients cannot afford to pay for your services up front and in full. Clients ARM can help your clients obtain a loan to pay you in full. Our Hello Finance Manager program is free and easy! Whether or not a business can afford to pay you after extending an appropriate line of credit will directly affect your profit margin and whether you will qualify to get loans or investors for your business. A business credit check is a necessity that protects your business.
Step 1 – Get the Necessary Information and Get Permission
The first step to perform a business credit check is to get all of the necessary information. You could use a credit application to complete this. Make sure that you take the information that you receive from the business and compare it to the information that is on their website. You can verify the name, location, and other pertinent information.
You also need to get permission to run the credit check. Federal law requires that you get permission before you run a credit report. Get permission in writing.
Step 2 – Choose the Appropriate Credit Bureaus
When you’re running a business credit check, you may likely have two options. In instances where the owner will personally guarantee the debt, you may also want to run a personal credit check to determine the creditworthiness of the business owner. There are also specific companies that offer credit reports on businesses. Some of the most common providers include Experian and Dunn & Bradstreet. Also, if the business is in the United States, find out which state the business is incorporated in. Visit that state’s Secretary of Security and search the business name to determine if they are in good standing with the state. Most credit bureaus do charge a fee for you to access the credit report of the business. This is a good investment because it can save you from dealing with a past due account that is worth thousands of dollars. Depending on how many credit reports you think that you may run in the future, you may want to consider a yearly subscription.
Step 3 – Analyze the Credit Report
Keep in mind that when you’re looking at a credit report associated with a business, some of their vendors and suppliers may not report their activity to the credit bureau each month. So, while you should certainly scrutinize what you see on the report, it may not necessarily be wise to base your decision solely upon the credit report. Also, experts believe that 75% of all credit reports contain at least one error. So, if you see something that causes you to question the potential credit extension, talk to the business. If there is a company reporting that the business in question didn’t pay them, the business in question may be able to provide you with proof that they did pay and that it simply wasn’t reported to the credit bureau.
Step 4 – Determine the Creditworthiness
Your next step is to determine the creditworthiness of the business. If you want to extend credit, make sure that you only give a credit line that the business can reasonably pay back to you. You can always start with a small line and provide extensions over a certain length of time. Other options include offering a credit line and requesting a retainer that you will work against. This can show good faith on the part of your potential client that they are serious about paying you for your services.
Need Help?
It can be difficult to determine the appropriate credit line for businesses and individuals that need your services. Clients ARM can help. We have more than 30 years of director-level experience and can help you by setting up appropriate lines of credit for your potential clients. Lines of credit can be great to grow your business if they’re used properly. Your business deserves expert assistance. Contact Clients ARM now to book your free process review. There’s no obligation!
