In 2021, late payments affected half of all business-to-business (B2B) credit sales. Eight percent of B2B sales bought on credit were uncollectable because of bankruptcies, closings, and insolvency.
Non-payments hurt profitability for businesses of any size. Late payments can put on a strain on cash flow and finances. Slow-paying customers are more than just frustrating. More than 50,000 businesses fail each year because of cash flow issues.
Managing credit risk is crucial to protect your cash flow and keep your business operating smoothly. Evaluating credit for customers is especially challenging for small businesses. The majority of small businesses are sole proprietors. In many cases, that means the business’ fortunes are also tied to the owner’s finances. When considering extending credit, you need to take a look at the business owner’s profile and how they handle credit.
Other small businesses may not have been in business long enough to establish a business credit report. In that case, it also helps to probe a little more deeply into the business owner to make a solid decision about credit and credit terms.
In either case, checking the business owner’s profile can paint a more comprehensive picture of a company’s ability to pay its bills on time and handle credit responsibly.
The Experian Business Owner Profile Report
Small businesses make up more than 99% of U.S. businesses, and they can be a great way to grow and expand your business. However, you want to be confident in your decision to extend credit and mitigate your risk. An Experian Business Owner Profile Report can help.
The business owner profile pulled in conjunction with a business report will include information such as:
- Whether the business or owner has any derogatory legal action, such as bankruptcies, liens, or judgments
- Whether the business or owner is 30+ days delinquent on any trade accounts
- Consumer credit scores from FICO, Scorex, or VantageScore
- Trade payments
- Credit inquiries over the past two years
- Status of credit accounts
- 24-month payment history showing any late pays, collections, charge-offs, bankruptcies, or foreclosures
The business profile report also helps verify business owner identity and previous addresses, and includes a brief employment history. If the business owner also has other employment, it will list it along with their other most recent employer.
View a sample Experian business owner profile report at CommandCredit.net.
Protecting Your Business
Many small and medium-sized businesses rely on small business customers to provide credit references when making credit decisions. This allows B2B customers to hand-pick the references they share. They are not likely to list companies where they have delinquent accounts. So, relying solely on credit references is a poor way to judge creditworthiness.
When you pull a business owner profile report, in conjunction with a business report you get an independent assessment of the business and the business owner’s credit history. You would be able to see, for example, if a business owner has run up a significant amount of personal debt. This might give you pause when you are considering whether to grant credit. If you see warning signs, you might decide not to extend credit, limit the amount of credit you offer, or ask for additional payment guarantees.
Just as importantly, when you can see someone has managed their credit well in both their business and personal life, it can give you the confidence to provide credit knowing the risk of default is lower. This helps you better forecast your cash flow and prevent surprises.
As you know, cash flow is crucial to managing your business well. Slow payments and non-payments can have a ripple effect. When you do not have the cash coming in, you may be forced to take out loans or even reduce your workforce. You might have to slow down your payments to your suppliers or delay orders for much-needed inventory.
All of this can jeopardize your reputation and relationships. You may have spent years building a strong business credit history only to have it tarnished because of a poor decision to extend credit to a customer.
When businesses fail, 82% cite cash flow problems as their top reason. You simply cannot afford to put your business at risk. When you order a business profile report, you get the information you need to make better credit decisions.
If you are looking for ways to reduce your risk with small business customers, request a consultation to learn more about business owner profiles.