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Is there a cost effective way to credit check clients?
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2 Answers
For "one off" credit, your option are numerous.
But, consider a better option than "one off". Consider providing a much more valuable service to your organization and your sales department by batch pre-approving credit based on a sales prospecting list. The number of prospects is up to you. The scope of your prospect list is up to you.
Just imagine providing to your salesperson a list of brand new customers that has already been credit pre-approved. The credit approval process has already been done. All that needs to be done is to set up the account in your system and start invoicing and shipping. this approval process, once implemented, approves credit on as many prospects as needed and within 24 hours.
This the future of new account credit application processing is all based upon your company's current credit approval processes standardizing the process yet provides for the flexibility to evaluate closer marginal credit risk companies.
Now......how can anyone really evaluate the costs of such a process?
PS....I am not a salesperson for this process but I can describe the processes which I do in my webinars. Contact me directly if you would like to know more.
The time honored way to check credit on a customer is to use Dun & Bradstreet services which can be had at dnb.com. They will sell one off credit reports which can be bad or good based on what they have for any particular company.
Do not ignore the time honored and free ways to check credit which is to ask the prospective customer about his other vendors for reference checks, bank reference etc. You can call these sources who should be willing to help their customer; but you must ask pointed questions.
Several months ago on Focus, I posted an analysis of business credit which is copied below for your reference:
Credit is one of the most important decisions a business can make, regardless of size. Fortunately, there are some time honored principles that govern credit decisions, but in the end, credit is a matter of judgment.
Essentially the process of checking credit is finding "others" that have extended credit to the customer in amounts that are similar to what you plan to give, and these "others" can report that they were paid promptly. In order to find "others" I suggest the following: Solicit from the prospect credit references including the company, name, position and phone and email numbers. I suggest asking for at least five as some may not return phone calls and speed is important to keeping your sales force happy. You want to ask these references specifically about their payment habits and high credit amounts. The treatment you get will be similar. Do not settle for less than three references actually contacted.
You can also get reports from Dun & Bradstreet. While not cheap, these reports can verify the existence of a firm and provide some credit experience from those firms (certainly not all) that report to D&B. Reports can be obtained over the web. I recommend a subscription service with D&B which substantially lowers the cost of the report and encourages you to use reports rather than avoid them as too expensive. Some prospects will give financial statements to D&B but this is not common. D&B will also give you their credit limit suggestions based on the payments reported to them. They seem high to me, but worth using as a comparison.
If you cannot get sufficient trade references, be quite cautious. Also ask for bank references; the bank can typically confirm a borrowing relationship and approximate cash in the bank. A firm with little cash in the bank may not be able to pay you, so ask.
For a privately held company, ask for financial statements which will include an income statement and balance sheet. Do not settle for very old statements which may show a financial position far better than the current situation. For a public company, research public filings about the company to get its financial statements. If you are not experienced in reading statements, get help.
If you can't find a company that has given credit in the amounts the company has sought from you, this is a red flag. This kind of fact strenthens the need for financial statements and potential credit guarantees. An example would be a credit request of $100,000 with demonstrated high credits of $35,000. I would typically not exceed the $35K in credit extension without a lot of other validating information.
Part of your credit process should be to speak to the customer's top management directly (for larger credits). Ask them about trade references that did not reply and request their help. Ask about the financial statements and things that seem out of order. Ask about odd things you find in the D&B report. This can be done in a tactful way. But don't rely on what management says.
Finally, I suggest you run a search on the company over the Internet and see what shows up. You may find press releases, complaints about the company...who knows. But it might be relevant to the credit decision. Also look at their web site but realize this is mostly marketing puff.
Save your work in a credit file; you may need it later. If you cannot justify the size of the credit requested, talk about this with your sales rep and the customer. Often a solution, such as a prepayment, a letter of credit from a bank or other means can be made to secure the credit. Do not give in the the sales rep if you are uncomfortable; they will deny everything when the customer defaults.
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