![](\"https:\/\/s3.amazonaws.com\/snd-store\/a\/96144817\/03_13_24_1240157476_bb_560x292.jpg\")
<\/p>\n<\/p>\n
Does your company operate in the business-to-business (B2B) marketplace? If so, you\u2019re no doubt aware of the double-edged sword that is customer\u00a0credit.<\/p>\n
On the one hand, it\u2019s common practice. Most customers likely expect to be offered a credit option when engaging in B2B transactions. On the other, credit arrangements inevitably come with risk of late payments or nonpayment, which can lead to cash flow problems for\u00a0you.<\/p>\n
To manage this risk, it\u2019s critical to keep a close eye on how your B2B business is handling customer credit. A good place to start is at the beginning \u2014 with credit assessment.<\/p>\n
Gather the pertinent data<\/strong><\/p>\n Presumably, you already ask new customers to complete a credit application. If you\u2019ve been using the same form for a while, reevaluate it to see whether you should add questions or update the design. The application should request basic information such as each customer\u2019s:<\/p>\n Bear in mind that you can request additional specifics. For example, perhaps inquire into how long the business has been operating, under what entity type it operates and whether it has a parent company.<\/p>\n If the company is privately owned, consider asking for a set of its most recent financial statements \u2014 or, at the very least, its latest income statement and balance sheet. (Financial statements of publicly owned businesses are published in their annual\u00a0reports.)<\/p>\n On the income statement, analyze financial data such as after-tax profit margin, which can be calculated by dividing net income by net sales. Ideally, this metric will have remained steady or increased over the course of the year. The company\u2019s profit margin also should be similar to that of other businesses in its industry.<\/p>\n From the balance sheet, you can determine current ratio, which can be calculated by dividing the company\u2019s current assets by its current liabilities. The higher this ratio is, the more likely the business will be able to cover its\u00a0bills.<\/p>\n Check references \u2026 and more<\/strong><\/p>\n Along with the information mentioned above, references are key. Ensure someone on your staff is following up on\u00a0these.<\/p>\n Begin with the company\u2019s bank reference to learn or verify its checking and savings account balances, as well as the amount available on its line of credit (if it has one). Find out whether the business has recently violated any of its loan covenants.<\/p>\n Next, contact multiple trade references for the company. Establish the length of time that each reference has worked with the potential customer, as well as the approximate size of each of the accounts. Also inquire about the potential customer\u2019s payment history with each reference.<\/p>\n In addition, order a credit report on the business from one of the major credit rating agencies. The report will describe the company\u2019s payment histories with various creditors and reveal whether it has filed for bankruptcy or had a lien or judgment against\u00a0it.<\/p>\n Last, consider using \u201cadverse media screening\u201d in your due diligence process. This is when a prospective borrower is \u201cscreened against\u201d various media sources to determine whether the person or entity has been a party to any suspicious, unethical or illegal activities. It can also reveal worrisome news, such as stories about impending lawsuits or plans to shut down a division.<\/p>\n Improve the odds<\/strong><\/p>\n As a B2B company, you don\u2019t have to accept customer credit problems, and the resulting negative cash flow impact, as a \u201ccost of doing business.\u201d By continuously improving your approach to credit assessment, you\u2019ll stand a better chance of avoiding unreliable payers. We can help you review your process and choose the optimal\u00a0metrics.<\/p>\n \u00a9 2024<\/em><\/p>\n <\/body> Does your company operate in the business-to-business (B2B) marketplace? If so, you\u2019re no doubt aware of the double-edged sword that is customer\u00a0credit. On the one hand, it\u2019s common practice. Most customers likely expect to be offered a credit option when engaging in B2B transactions. On the other, credit arrangements inevitably come with risk of late […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,14,10],"tags":[8,11,12],"class_list":["post-16858","post","type-post","status-publish","format-standard","hentry","category-articles","category-business","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16858","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=16858"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16858\/revisions"}],"predecessor-version":[{"id":16859,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16858\/revisions\/16859"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=16858"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=16858"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=16858"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
\n<\/html><\/p>\n","protected":false},"excerpt":{"rendered":"