Resolve Guide: 8 Steps to Expert Customer Credit Checking

If your business customers pay you on net terms (30, 60, 90 days) - chances are your team is performing business credit checks in-house. Maybe it looks something like this... Your customer gets sent a lengthy credit application form, they may take a week to return it to you, your team needs to verify information and call trade references, and then you need to ‘make a gut call’ on the resulting credit line limit.

Using the old-school methods to check a customer's credit, find their business credit report, credit history, and extend net terms can cost your business in more ways than you think. It's even harder if there's no payment history or business data to go on.

Here are eight steps to understanding why your team shouldn't be doing business credit checks in-house. Then we’ll outline how Resolve speeds things up by being your ‘credit team on tap’.

1. Realizing the old-school credit check is a huge drain on resources

How to check a business credit risk score? On paper, the old-school method for performing a business credit check looks pretty simple. But in reality, getting business data is a lengthy information-gathering expedition that can take days or weeks to complete.

Here's what your team needs to go through every time they run a business credit check or find a business credit score:

  1. Business credit report request: your new or existing customer applies for credit, and you send your lengthy application forms to collect their business information.
  2. Information gathering: once your customer has completed the necessary paperwork, it can take your team days, sometimes weeks, to process and collect further necessary info—calling references, updating your systems, dealing with credit bureaus.
  3. Evaluation: your team reviews all of the credit information and business credit score in order to make a final call about the risk of floating net terms for this customer.
  4. Decision: it's time for your team to decide whether to extend net terms or not and determine the total credit limit the customer should receive. No matter how thorough your credit check process is, this decision is often based mostly on gut feeling and intuition.

Considering that you could outsource the entire process to a net terms management solution, you need to ask yourself whether performing business credit checks is the best use of company resources. Can you afford any payment delinquency?

2. Accept that DIY credit checks won't scale well

More customers mean more business, which is great for your bottom line. But more customers also means running more business credit reports, which ultimately results in more work for your team.

Sure, your accounting or Accounts Receivable (AR) team might be able to perform business credit checks at the moment. But would they still be able to handle the workload if your customer base doubled or tripled?

As things ramp up, it's common for the following issues to arise: It's tempting to make quick, risky credit decisions just to close a sale.

Small businesses are even hard to check properly as they don't show up on credit monitoring services or business credit bureaus. Unfortunately for sole proprietors, a personal credit score and putting forward personal finance info like a social security number just doesn't cut it.

  • Sales reps override set credit limits, which can expose you to levels of bad debt that your company may not be able to handle
  • It's harder to follow up with customers in a timely manner
  • Overdue payments can slip through the cracks
  • Mistakes and inaccuracies on bills, invoices, or credit terms are easy to overlook

According to Lockstep Collect, most companies should staff at least one full-time credit professional for every 1,000 invoices created each month, along with a backup resource and a supervisor.

Unless you plan to bring on new employees to focus exclusively on business credit checks as your customer base grows, the DIY method is not a scalable approach.

3. Put sales first: Lengthy credit checks mean lost sales

Best case scenario: your team can confidently approve a customer's credit in a matter of days. But not every business credit report is created equally. If calling references and running other background checks takes longer than expected, it could take weeks to extend net terms to a customer.

Even though you're probably offering business credit to drive sales, a lengthy credit check process can scare customers away. Especially if your competitors are offering instant business credit approval and favorable net terms. Not every customer will have business credit cards (likely with high interest rates) on hand with a high limit. Especially small business owners may be struggling, looking for a business loan and that can affect creditworthiness too.

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4. Stop spending $$$ on credit bureau reports (they don't eliminate risk)

On average, major credit bureaus like 'experian business credit score' checks charge between $40-$140 USD for a business credit report. These reports can show you things like a business's credit score, repayment history, bankruptcies, tax liens, previous lawsuits, and risk of failure. But even with all of that information on hand, it's still up to you to decide how to act on that information.

What factors will you use to approve a customer's credit application? Apart from their business credit report? The business's experience, their policies, their sba or sales data? Maybe the person you're dealing with just gives you a good vibe?

And when you do decide to approve a request for business credit, how much credit will you actually extend and what net terms will you provide? 30, 60, or 90 days?

This is where a B2B net terms management solution like Resolve has the upper hand. We process tens of thousands of credit applications a year, which gives us the data and the experience required to benchmark a customer's credit profile against thousands of others, spot trends, and eliminate unnecessary risk.

Even if you are using experian, unless you plan to review thousands of llc's credit applications every year, there's no way your interpretation skills of business credit score or your internal processes will be sharp enough to spot every red flag before it's too late.

5. Credit scores: Understand you can never make the right decision

Ok, you did the one-time Dun & Bradstreet, Equifax, Intelliscore or Fico check. But just because a customer checks out on paper—a healthy public record, credit score, no outstanding liens, glowing references—there's no way to guarantee that you're making a "good" decision when you approve their credit request. Major business credit bureau reports are only half the story.

A business that's doing well now could default on their credit in the future for any number of reasons. Take the pandemic as an example. Entire industries were wiped out during the first wave of unexpected lockdowns. Overnight, thousands of businesses had no ability to repay outstanding invoices.

Ultimately, your business is acting like a lender when it extends credit to other business owners. You might think you're making a sound decision based on the old-school credit check process. But if the business relationships or customers' circumstances change, your company could find itself on the hook for sudden, excessive debt that will never be repaid.

6. Don’t expose your company to B2B fraud

Sadly, businesses defrauding other businesses is a tale as old as time. If only it were as simple as consumer credit checks.

  • In 2018, the Association of Certified Fraud Examiners reported that U.S. businesses would lose an average of 5% of their gross revenues to fraud.
  • According to the AFP, 78% of businesses experienced attempted or actual B2B payments fraud last year.
  • Credit bureau Experian and UCC reported that B2B fraud is a multi-billion dollar per year problem for U.S. businesses.
  • If your credit check process of public filings isn't robust enough to catch bad players, you may end up floating net terms to a customer who has zero intention of paying you.

7. End late payments that jeopardize your cash flow

When customers fall behind on their payments, cash flow suffers. Maybe your company could probably handle a few late payments here and there. But if enough customers defaulted on their payments to cause serious cash flow issues, your business could find itself in a sea of trouble.

For argument's sake, let's say the worst comes to pass. Here’s a look at the cash flow woes that could impact your organization:

  • Your team would shoulder an additional administrative burden, just to stay on top of delayed payments
  • Your company could be forced to default on payments to vendors
  • Vendors might charge overdue fees for late or partial payments
  • Your business credit rating could take a hit
  • Lack of funds would reduce your company's ability to keep trading, advertising, and scaling
  • You may need to seek a loan or additional funding to cover the debt
  • Worst case scenario: you'll run out of cash entirely

It sounds so extreme that you might think it could never happen to you. But according to Freshbooks' analysis of over 20 million invoices, 64% of small businesses have to wait for late invoice payments and 60% of small businesses suffer from cash flow optimization challenges every single month.

Before you decide to perform business credit checks and extend net terms to customers, ask yourself if it's really worth the risk.

8. Outsource collecting debt & save your business time & money

When a customer doesn't meet their repayment schedule, writing off the loss will put a dent in your bottom line. Do you really want to be a lender? Factoring in the cost of attempting to collect that outstanding debt will shock you.

With your in-house team pursuing every overdue payment, you're adding to your overall employee salary costs. Hand the debt over to a collection agency? There's a fee for that, too. It's easy just to work with low-risk companies with a good business credit score from the get-go.

The solution? Outsource credit checking with a ‘credit team on tap’

There's a better way to manage credit checks and net terms, it's called Resolve. Resolve is a complete B2B credit management and net terms solution. We take care of credit checking, credit line approval, advance payment of net terms invoices, payment processing, reminders, and collections (if needed).

  • Utilize Resolve’s credit experts who assess thousands of businesses
  • Get business credit check results within 1 day
  • ‘Quiet’ credit checks - only business name & address needed
  • Shared information, see our credit report & insights
  • Want to use our invoice financing? See your customer’s resulting credit line limit and invoice advance rates with Resolve
  • Don’t be the bad guy - you can point to your 3rd party credit checkers (Resolve) if a customer isn’t approved.

In short, we're a credit team on tap. Resolve can check your customer's credit in minutes, not weeks. This is because we have access to proprietary databases and the final decision is made by our dedicated and experienced credit specialists. How does Resolve make net terms risk-free? We are the lender, not you. Resolve advance pays up to 90% of approved customer's invoices - within 1 day. Then your customers get 30, 60, or 90 days to pay us. It's risky to float your own net terms, let us take on the risk for you, and with fees that are cheaper than credit card processing.

Ready to find out how to improve your credit processes and get risk-free net terms? We offer a free credit report and financial information as part of our free trial offer.

Net terms & credit management

Ready to offer smarter credit with Resolve?