How A Supplier Determines Whether To Extend Credit To Other Businesses
Manufacturing companies are entirely dependent on their suppliers for the raw materials necessary to produce finished products. Small and midsize operations are frequently dependent on credit to obtain their raw materials. For example, a manufacturer that makes jewelry boxes needs large amounts of wood, lining fabric, leather, and hardware to make its products.
Your company faces a two-sided sword as a supplier offering raw materials on credit. It’s a time-honored way to grow your business and control a larger share of the market. On the flip side, your company suffers when it extends credit to a manufacturer that doesn’t pay its bills. A business credit report is the best way to determine if a manufacturer is a good prospect.
Parts of a Business Credit Report
A business credit report is significantly more detailed than one on an individual. Its various sections include:
Basic descriptive information on the company
Legal filings the company has made or that have been filed against it
Collection action against the company by its creditors
Payment history including any charge-off activity
Payment trends, which indicates whether this particular company is paying its bills in the same manner as other manufacturers of similar size within its industry
Industry Credit Reporting Agencies
The major industries, whether it be mining or small manufacturing, have what is known as industry-specific credit reporting agencies. Sometimes you glean gems of information from their credit reports that are not listed on reports from the Big Three.
You’ll get a general sense of the upward or downward trend for that particular industry as a whole. Using the hypothetical jewelry box manufacturer as an example, you might be more cautious extending credit if the overall industry is in a downward spiral.
The Big Three
The Big Three – Experian, TransUnion, and Equifax – provide business credit reports to suppliers that are registered with the credit agencies. Establish an account with each of the Big Three so you’ll be able to quickly obtain financial information.
These reports help you to decide whether a company is well-managed, which is one of the most important indicators of getting your invoices paid in a timely manner. Your business definitely needs to pull reports from all three credit agencies due to the fact that some of the applicant company’s creditors might only post information to one or two of the credit bureaus. You’ll get a more complete picture of their financial stability by reviewing all three reports.
If you’re wanting to run a credit and background check on a company you’re considering doing business with, reach out to a local professional like Fingerprinting Pros.