How Being Credit Smart Can Help Protect Your Small Business


As any small and medium enterprise (SME) owner knows, risk is a constant factor in business. Changes in a company’s credit profile and internal movements can happen at any time without external parties being made aware, leaving your business exposed.

To mitigate this, businesses can run a credit report on their partners, suppliers, or customers in order to gain a better understanding of the risk they pose.

Often, credit reports aren’t on the radar for many small and medium business owners - running a credit check may be viewed as too expensive or resources may be limited.  But investing in business credit checks, to understand how risky a client’s business is, is an investment that will pay off. It means you’ll be able to make more informed decisions about who you extend credit to – mitigating the risk of bad debts. 

Moving away from 'set and forget'

When a company starts experiencing financial trouble, often the first thing it will do is stop paying its suppliers. It’s vital for suppliers to know who they’re doing business with and how they are performing throughout the business lifecycle. The information helps businesses to positively manage cashflow and reduce the risk of non-payment. 

Integrating credit reviews into your process, whether quarterly, annually or at regular milestones over the course of a long-term project, can protect you from unfavourable surprises. Equifax offers ‘Business Reports’ and ‘Business Alerts’ to help SMEs assess and manage risk.

Business Reports’ help you see any changes in a debtor’s financial situation, allowing you to identify any financial stress early on and update your payment terms accordingly. 

Business Alerts’ allow you to monitor a business and the types of events or performance changes you wish to be notified about - credit enquiries and court judgements are good examples. Email notifications are sent whenever the specified events occur or performance thresholds are met.

There are a number of simple steps SMEs can take if there are warning signs:

  1. Speak to your customer.  There may be a reasonable explanation for the changes and the problem can be resolved without any further action.

  1. Think ahead. Managing your cash flow is important if a customer is going through a period of financial difficulty, and your level of cash flow may help inform the actions your own business should take.

  1. Review your other customers. If any of them are also showing signs of financial difficulty this could also impact the action you take with regards to your payment terms.

  1. Adjust your payment terms. You may need to reduce the amount of time a client has to pay, or the credit limit available to them, to protect your own business and avoid causing a ripple effect amongst your professional networks.

Beyond risk reduction

Knowing if your customers’ risk profiles are changing helps you to protect your business, but what about when your customers are performing well and are actually getting less risky? This is the perfect opportunity to deepen your engagement with these well-performing customers, becoming partners in growth through extending terms, increasing limits, and so on. The more integrated your business is with your best performing customers, the better the opportunity for you both to benefit!

Contact us  - find out how Equifax business solutions can help you manage your credit risk.

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