Providing customer credit is quite normal and taken for granted under many circumstances. There are of
course many terms and conditions under which companies provide customer credit. Trust, and knowledge
about company history, background checks and reputation in the market are some such factors which are
conditions under which customer credit is awarded to customers.
One must also note that just as it is mandatory on the part of the credit giver to verify the facts
about the companies they facilitate credit to, similarly it is also important that companies seeking
business credit maintain clear financial terms and conditions as well as guard
their market reputation as a reliable organization.
Regular Credit Checks
Unlike the good old days when business was primarily restricted to people one knew in and out,
increasing globalization and opportunities overseas have necessitated the need for periodic and regular
credit and background checks for companies one deals with. A thorough background check reassures the
credit giver that his money and business terms are safe and in responsible hands. This also, gives way to
better and easier transactions over a period of time.
All said and done it is important to know that providing customer credit to customers could be a risky
proposition. As experience and history has told many a businessman that, it could prove difficult to
recover credit from many a business associate or even a friend in such matters.
The question than arises, why should business men provide customer credit when there are embarrassing
and serious chances of failure to pay fees for credit collection, unpleasant public relations and
uncomfortable customers who don't take professional ethics seriously? The answer to this probably lies in
the fact that customers like being given the leverage of customer credit and statistics show that
customers frequent when and where credit is given. A growth in customers directly transcends to growth in
profits, and this is why businessmen take the cumbersome burden of being associated with customer credit,
repayment hassles and the entirety of the process in their stride.
Why Are Background Checks Required?
Keeping these problems in mind one understands the need for a background check that companies tend to
conduct these days. This has become more of a formality measure, even though it is of course of
tremendous importance. A back ground check actually gives us a good idea about the company we are going
to deal with, it also helps ensuring that your finance is not in the wrong hands and can be well
reclaimed when needed.
Back ground checks involve getting into the detailed financial health report of a company, its
standing in the market, it sustenance capacity, market share, growth rate, etc among many other
associated factors. New customers mean an opportunity for increased profit and sales. But a background
check also ensures that your own safety is ensured, therefore it is necessary that certain procedures
must be followed before a mature credit decision is made.
There is hardly any better source of information about a particular business than from the business
itself. A direct communication with, the 'powers that be' provide the business credit providers with various necessary financial details, bank and trade
references, besides other such information that may be of importance. The process in which this
information is requested and obtained also depends upon the time available for the investigation, the
degree of cooperation that can be obtained from the customer, location of the customer, and the
relative importance of the credit exposure of the customer.
Checking Out A Company's Credit Reference
While you are checking out a particular company's credit references, be sure to check on, correct
company name, if the organization has any subsidiary, division or business unit apart from the main
branch. You should also check for legal characteristics such as: if the business is sole ownership,
partnership or a corporation or any other kind of arrangement.
Make sure that the customer has specified his type of business, whether he is a retailer, distributor,
wholesaler, etc. Bank references, along with complete name, address, phone number, type of account, etc
should be specified too. There is some other information you could do with before starting on a business
deal involving credit, these could be about the amount the company currently owes in debts, amounts due
in the past, trade references, etc.
Status Reports
A status report on your prospective client's payment practices would include relationships with other
business houses, the clients' existing business conditions, apart from other pertinent financial details.
Even while garnering information on your prospective client could be a tough and no mean job, it does
help you by furnishing you with vital information, which may help in deciding for you your future
prospects with the respective organization.
A comprehensive financial status report will help you assess business risks about extending terms or
credit levels. One can also avoid credit risk factors. Details about banking, trade and collection
history tell the person about what to expect based on the clients business practices past liens,
judgments, business registrations as well as bankruptcies.
While one cannot do away with the system of credit, one can indeed safeguard oneself against the
repercussions of the system by ensuring some safeguards for oneself. These could be achieved through some
simple steps taken like, establishing standards for credit, putting a limit on the amount of credit
given, by offering incentives for early payment, expedite action on overdue accounts, You could also try
using the services of a collection agency in case of clients who smell of trouble.
