Bad debt? Stop the problem before it even occurs

Bad debt is a common problem for small business owners.  As a result a lot of time is spent trying to improve billing and collection efforts.  However, for many small businesses this problem can be resolved before it even occurs by ensuring a prospective customer has been risk assessed properly.

Not only can credit reports help you identify who is a bad risk but more importantly they can help you identify those prospects you could be doing more business with.  Smart executives use credit information to grow, not limit, their business.

However, many small business owners don't fully understand or use credit reports because of concerns about cost and process.  The myths surrounding credit reports are sure to be costing you money.  Here we respond to the top 5 myths of credit reporting.

5 credit reporting myths

  1. My customers have been buying from me for years. I know they will  continue to be reliable payers

    80% of bad debt comes from customers who have been on the books for at least twelve months.  This means your riskiest customers are in fact the ones you are paying the least attention too.  With hundreds of thousands of firms rated a high risk of paying their bills late chances are that many of them are your customers.

  2. My customers are too big to fail

    Unfortunately thousands of suppliers thought the same thing about  companies like HIH, OneTel and FAI.  Globally, many thought Enron's  size meant it was safe.  The truth is big businesses fall and they fall hard  causing havoc for their suppliers.  

  3. My business is too small to afford a credit reporting service

    No business is too small to guard against bad debt.  A sale isn't a sale  until your invoice is paid and there's no point winning new business only to  find out you won't get paid.  Why risk even a few hundred dollars of bad  debt when you can conduct a basic credit check for as little as $40?   By incorporating the credit checking service into your everyday processes  you can reduce the cost even further and manage your credit risk more  effectively.

  4. Before I take on a new customer I require three trade references.   This ensures I get to hear from other suppliers about payment risk.

    You don't really believe a potential new customer is going to refer you to a  businesses they've been paying late do you?  The truth is that trade  references need to be independently verified and assessed. D&B's trade  references database holds millions of records providing you with an  independent analysis of the real payment performance and risk of your  potential new customer. 

  5. A credit report isn't a guarantee that a business will always pay its  bills on time

    Absolutely right.  Things change and a good credit policy is one that  continuously reviews customers and is alert to changes in their  circumstances.  Monitoring credit risk is as important as the initial check.   This allows you to remain alert to any changes in your customers'  circumstances.

Learn more about establishing a credit assessment process here >>

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