I have no desire to be a debt collector, and most business owners would say they don’t want to be in that business either. But with the current economic climate, I find myself fielding an increasing number of questions from clients who are not getting paid by their customers or clients, and want to know what they can do to collect.
This is one of those situations where an ounce of prevention can easily be worth a pound of cure. If you haven’t been in the habit of checking credit on clients or customers, now is the time to start.
It’s not always easy to get a handle on the business credit reporting world, however. In addition to the described the major commercial credit reporting agencies that collect and sell data on a wide variety of firms and industries (D&B, Experian Small Business, Equifax Commercial Credit and the Small Business Financial Exchange and Cortera) there are specialized commercial credit reporting agencies that focus on particular industries, types of credit, or geographic areas. Here are a few examples:
- Seafax serves the perishable food industry;
- Lumbermen’s Credit is the predominant bureau for building materials suppliers;
- Tarnell serves the plastics industry;
- PayNet Inc. collects and reports information on commercial loans and leases.
A good way to find out which agencies serve your target industry would be to talk with a trade association that serves your industry, or target industry. You can also find out whether there is a local National Association of Credit Management (NACM) meeting you can attend. NACM members collect data and sell business credit reports, but they also offer local credit groups that hold meetings where credit professionals meet to share information about customers as well as risk management and collection strategies. Some credit groups are stronger than others, but you won’t know unless you attend a meeting. There are also national groups you can join directly through NACM. (You may be able to hook up with a local debt collector through NACM as well.)
When a client asks me which credit agency they should use to check credit, I respond with my own series of questions. Here are some of the questions I suggest you ask when choosing a source for your business credit reports:
How many business credit reports do I plan to buy each year? Reports can often be purchased individually or on a subscription basis. Find out which option is most cost effective.
How great is my exposure with each client? The more you stand to lose, the deeper you’ll want to dig.
How do each of the reports compare for my target industry? It might make sense to purchase reports from several different agencies to compare the quantity and quality of the data. The extra expense may be worth it if it helps you identify the best source of credit data.
Do I want to report my customer information as well? You may get a discount on the reports you order if you are willing to share client’s payment information. Letting your clients and customers know that you will report their payment history may have the added benefit of moving your invoice to the top of the pile.
The good news is that within the business world you are free to check business credit reports on any company you choose. You don’t even have to ask their permission. However, it makes sense to let prospective clients or customers know that you will check their business credit before you sign an agreement. That will allow them to alert you to problems up front, or may even save you the time and trouble of moving forward if they balk.
If a credit check turns up no information, you may want to ask for business references and check them directly. If it turns up negative information, or the business still can’t demonstrate a track record, ask for a deposit or payment in full upfront. Most importantly, don’t extend any more credit – or services – than you can afford to lose or give away. It’s not a sale until the money is in your account. And the last hat you want to wear in your business is that of debt collector.