Why It’s Important to Check a Vendor’s Business Credit Reports Online Before Doing Business with Them
Business Credit Reports
Consumers who can demonstrate healthy credit scores are more likely to qualify for loans and new credit at inexpensive rates.
Businesses that are involved in extending business credit also need to adopt a similar approach while extending credit.
They must assess a vendor or a supplier’s payment and credit scores before doing business with them.
Doing so promotes the growth of financially responsible relationships.
On the other hand, doing business with customers, suppliers, or vendors without investigating their credit rating increases the risk of fraud.
Why Do Suppliers and Vendors Have Bad Credit?
Suppliers, vendors, and customers usually have bad credit because of their extensive list of charge-offs, lawsuits, bankruptcy filings, unsafe debt-ratios, or low repayment trends.
Even the suppliers that are excessively investigated by other businesses should be viewed with caution.
The need to be careful while extending business credit has never been more urgent.
- In 2017, Deloitte reported that 33.4% of finance professionals don’t maintain vendor/supplier inventories. Not tracking the financial stability of your partners increases the risk of supply chain fraud and abuse. In the past, countless businesses have suffered from supply chain disruptions because they were unable to obtain meaningful data about their suppliers or customers.
- Between 2016 and 2017, a whopping 85% of global supply chains that Deloitte surveyed reported experiencing supply chain disruptions.
Since then, Deloitte has also reported that companies that are being assisted by third-party business credit reporting companies face a lesser risk of supply chain fraud.
Technology and the availability of these independent credit analysis companies are helping businesses detect and measure all suppliers based on their creditworthiness.
Analytics programs and software tools are not efficient at assessing an organization’s creditworthiness because fraudulent suppliers continuously evolve their methods to trick new businesses.
Professional providers of business credit reports online are alert to these risks. That’s why they provide detailed reports that contain information such as the supplier’s past legal filings and fraud alerts.
With such comprehensive reports, businesses can’t make mistakes while selecting suppliers or consumers.
How these Experts Mitigate the Risk of Supply Chain Fraud
Providers of business credit reports essentially help businesses get to know their potential suppliers.
Their reports answer critical queries about a supplier’s business practices.
For instance, these reports answer whether the supplier has a proven track record of meeting contractual obligations.
The report also discloses whether the supplier adopts the same high standards in terms of financial transparency as the lending company.
To be successful in such a risky business environment, businesses need to form strategic partnerships with reliable suppliers.
On the other hand, teaming up with illegitimate suppliers increases the risk of failed deliveries, unnecessary delays in payments, etc.
Providers of business credit reports help businesses avoid these risks by –
Providing Detailed Reports
The reports provided by third-party business credit evaluators help businesses explore the commercial identity of their partners.
They get a clear idea of the business’s name, address, tax ID, etc. More importantly, they get to access their suppliers’ credit scores, financial stability risk score, and past legal filings.
With this information, it becomes easier for businesses to know how much credit they should advance to the supplier.
These reports recommend credit limits as well. These reports also inform the business about the supplier/vendor’s creditor balances, liens, and past judgments.
Avoiding Risks from Consumers
Companies must also be aware of the risks that their consumers pose. After all, all sales operations are linked to suppliers.
Customer demand directly impacts a company’s purchasing requirements. In the past, many fraudulent suppliers have posed as consumers just to make businesses buy more from them.
Due to customer demand, businesses assume they don’t have adequate time to assess the supplier or the consumer’s financial background.
They advance credit to the suppliers without overthinking, only to end up with no deliveries.
Without detailed reports that uncover both the supplier and the consumer’s financial backgrounds, the procurement-supply dynamic will always be risky. Sales are the élan vital of any company.
Without assessing both parties’ financial background, they are putting their sales cycle at risk.
The Advantages of Teaming Up with Creditworthy Suppliers and Vendors
Suppliers or vendors that are creditworthy are more reliable in general. They have –
- Quicker loan approvals.
- Qualify for higher loan limits.
- It’s easier for them to lease office space.
- They attract other businesses.
- They receive low-interest rates on advances.
Every bank has a credit department overseeing the process of extending business loans. With the help of independent credit reporting companies, businesses can do the same and only associate with vendors, suppliers, and consumers who have firm credit profiles.
Credit analysis is a critical component of efficient risk management for any business. Without detailed credit reports, businesses can’t make sound lending decisions. To protect their business’s cash flow and eliminate all risks of supplier/consumer fraud, businesses must use the wealth of data these experts provide.
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Category: Business
