You probably wouldn’t dream of loaning large amounts of money without credit information on the borrower, right?
But do you pull credit reports on the companies with whom you do business?
The comparison is clear enough: In business-to-business transactions, credit is often extended directly or indirectly.
A baker who delivers to restaurants with “net 30” terms can have thousands of dollars in bread out there while he waits a month for payment.
A roofing contractor can pay out thousands in employee wages on a project long before he collects anything more than a deposit for materials.
Yet, despite the fact that they’re routinely extending credit in a major way, many small business owners don’t use credit reports. Matthew Debbage, president of U.S. operations for Creditsafe, Inc., a business credit reporting bureau, says that half of the company’s new customers have never used a credit report.
So what kinds of small businesses should use credit reports to vet their customers? Just about all of them, according to Debbage. In an interview with Small Business Trends, he explains:
“Obviously key industries are those that exist and work in a supply chain, and so have business suppliers and customers – transportation and wholesale are good examples … The only businesses that don’t have to worry about them are those that work in industries where everyone always gets paid on time and nobody ever goes bankrupt.”
Why the Hesitancy to Use Business Credit Reports?
Debbage says a typical comment he hears is, “Well, they’re not for people like me because our company is so small.”
He also says many small business owners don’t even know business credit reports exist, and others think they’re too expensive or difficult to understand.
Are They Expensive?
If you don’t need them very often, you can pull a single business credit report from an online provider. Dun and Bradstreet, for example, offers options that include their “Credit eValuator Plus Report” for $61.99. They allow you to do a company search before paying so you know they have the necessary report available (and they claim to have credit reports on “millions of companies”).
Creditsafe handles only B2B reports and sells a subscription. Rather than pay for each report separately, your subscription gives you unlimited access.
Asked, as an example, how much an air-conditioning company that grosses $500,000 annually would have to pay to run credit reports on customers, Debbage explained the cost would typically be around $100 a month.
Are They Difficult to Understand?
The example reports Dun and Bradstreet have on their website make it clear that credit reports are getting easier to read for the average user. Debbage touts the “ease of use” of Creditsafe’s reports as well, adding, “While they contain all the data an experienced user would need, they can be quickly understood by the time-pressed non-expert user.”
Here’s his description of the process a small business owner goes through to get a credit report:
- Open a subscription.
- Go to the website and log in.
- Search for and select the company.
- View the report.
How Do Customers Feel About Them?
But how will your customers feel about having a credit report pulled? It turns out that your customers will never know the difference.
Unlike with credit inquiries for individuals, with business credit reports you don’t need a signed authorization from anyone.
So will your customers mind? “Since nobody knows when a report is taken on them (in the B2B world) the answer is no,” Debbage says.
Is Your Business Ready to Start?
If your business sells products or services and doesn’t collect payment at the time of delivery, you can probably benefit from using credit reports.
Like many small business owners, you might be unaware that trouble is coming until an invoice isn’t paid, when it could be too late to collect. That’s a situation business owners can prevent, as Debbage explains:
“If they had accessed a credit report first, they would have seen that their customer had begun taking longer to pay bills or had been hit with a legal judgment. Having that type of information allows a small business to take steps before a slow-paying customer has morphed into a non-paying customer.”
Even small businesses can have customers who owe them thousands of dollars. Preventing non-payment on one such account would pay for years of business credit reports. That makes them worth considering.
Credit Report Photo via Shutterstock