June 20, 2015 7:00 am
Q: How do I run a credit check on new customers before I allow them to buy on account?
A: Many small businesses choose to increase their sales potential by offering credit terms to customers either individuals or other businesses. After all, the more options you provide for customers to pay, the more they might spend buying from your business. It is important, however, to find out whether those customers have a history of not paying their bills, are they credit worthy? Much has been written about verifying creditworthiness. Here are some of the best resources for learning more.
If the potential customer is another business, the best source of information is Dun and Bradstreet, www.dnb.com. Dun and Bradstreet maintains information about most businesses in the U.S. and even some businesses overseas. The cost of the information you receive will depend on how detailed you would like the information to be and how many credit reports you order on an annual basis. For many small businesses this is an expensive option. If DNB does not seem to be the best option for you, you may want to ask your potential customer for business references so you can contact some of their existing suppliers to find out their payment history.
If the potential customer is an individual, the best sources of information are the credit reporting bureaus Experian (www.experian.com), Transunion (www.transunion.com)
and Equifax (www.equifax.com). Each of these can provide businesses with credit and collections management services including consumer credit reports. Once again, there is a cost for this service.
If you decide to offer credit terms, it will also be important for you to learn about the Fair Credit Reporting Act which protects consumers from inaccuracies in their credit files and unfair credit practices. The Federal Trade Commission can provide the information you will need at www.ftc.gov. Another good resource is the National Association of Credit Management www.nacm.org, a membership organization for business credit professionals and credit managers.
There are costs involved in gaining access to business and consumer credit reports but those costs may be outweighed by the potential savings from not giving credit to a customer who doesn’t pay their bill or penalties for not knowing the rights of consumers under the Fair Credit Practices Act.
Before you begin offering credit payment terms, research credit practices and develop credit policies and procedures.
The SBDC is a partnership of the U.S. Small Business Administration, the Oregon Small Business Development Center Network, the Oregon Business Development Department and Southwestern Oregon Community College. Arlene M. Soto has been the Director of the Southwestern Small Business Development Center since July 2007. To ask a question call 541-756-6445, e-mail firstname.lastname@example.org, or write 2455 Maple Leaf, North Bend, OR 97459. Additional help is available at the OSBDCN Web page www.bizcenter.org.