The Importance Of Checking Credit on the Companies You Do Business With (And How to Do It)

The Importance Of Checking Credit on the Companies You Do Business With (And How to Do It)

The Importance Of Checking Credit on the Companies You Do Business With (And How to Do It)

Let’s start with a story that’s frustrating, true, and all too common.

Gerri is a independent consultant with years of experience. One day, she’s introduced to a potential business partner (let’s call him Mike) through a friend. Mike publishes information for the mortgage industry, and is interested in developing a credit training program for loan originators. Gerri and Mike decide to work together, and agree that Gerri will write the program, Mike will market it, and they’ll split the proceeds 50/50.

Gerri works hard and delivers the program. Mike begins the marketing process, and reports back to Gerri that her program is being well received and that she’ll be getting a check for $10,000 for the initial sales, with more to come as sales continue and sales objections are handled. But the check never comes. Mike assures Gerri that all is well, and asks her to wait just a few more days. So she waits.

And waits.

And waits.

You can probably predict the ending: Mike stops responding to Gerri’s calls, Mike’s office manager leaves, Gerri never sees a penny for her hard work, and an attorney advises her that it might be in her best interest  to cut her losses and move on. Which is what Gerri did.

We’re used to hearing stories about consumers being defrauded, but how often do we hear about businesses defrauding other businesses?

According to leading credit reporting agency Experian, business-to-business (or B2B) fraud is a multi-billion dollar per year problem for U.S. businesses. And you can bet that as more and more small businesses turn to e-commerce and virtual transactions to keep their cash flow flowing, that number will only go up.

Fortunately, the same technology that emboldens and expands B2B fraud simultaneously provides tools to avoid it. One of the most effective of these tools is tracking a business’s credit information.

While personal credit scores are protected by the FCRA, anyone can pull a business’s credit report anytime, without permission from the business. If Gerri had run a business credit check on Mike’s company, she might have saved herself a lot of stress and wasted time and money.

But even if fraud weren’t part of the equation, checking another business’s credit report is an important tool that should be used when you extend terms to another business, or make a large sale before collecting full payment up front. As a small business owner, your success depends your on customers’ ability to pay their bills on time. If your customers can’t pay their bills on time, keeping your cash flow at consistently healthy levels becomes difficult, and it can eventually force you to go under.

And, as Gerri learned the hard way, outward appearances don’t count for a lot when push come to shove in the business world. Recent financial disasters have proved that it’s sometimes the biggest and best-looking companies that end up collapsing and taking everyone down with them. No matter how good you think your relationship with a potential business partner is, you should always keep in mind that what you see on the outside is what they want you to see. Their credit history may very well reveal a different picture.

If you’re convinced that you need to perform a credit check on any company with whom you’re considering doing business, Nav’s Paid plans allow you to track detailed credit information on up to five different businesses at once. (Obtaining a single business credit report on another business would cost $40+ elsewhere.)

Growing a successful small business entails taking precautions as well as risks. (For a more complete breakdown of B2B scams and how to protect yourself, see here.) Checking the credit of the companies you do business with is one more step toward making your story a happy one.

This article was originally written on February 9, 2016 and updated on November 12, 2020.

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4 responses to “The Importance Of Checking Credit on the Companies You Do Business With (And How to Do It)

  1. My business partner now lives in another state. I’m concerned there may be loans taken out in the company name.
    How can I do a thorough check on any activity?


    1. Michael,

      You can check your business credit through Nav. You will get a summary report for free with information from Dun & Bradstreet, Equifax and Experian. We also offer premium accounts that provide more details and benefits for an additional charge. You can monitor your credit through a free or premium Nav account as well. In addition, you can purchase reports from any of the commercial credit bureaus. You may not find many additional accounts that way, but it could provide an another level of assurance if you are worried about missing something. The only other type of information that may be of concern are accounts that are not reported to business credit (there’s no requirement that they must be) or those that are only reported through the Small Business Financial Exchange. I’m not aware of a way (currently) to purchase that report unless you are a lender.

      Note: Be sure to monitor your personal credit as well just in case. See: 150+ Places to Monitor Your Credit For Free

  2. I tried to use your site to get credit information on another business but was prompted for personal information including my ssn. I would like to use your services but now need more information about he prompts I received. Please contact me

    1. Ms. Thompson,

      Nav was created to help small business owners check and monitor their personal and business credit in one dashboard. If you sign up for a Nav account through the web, you will be prompted to answer some questions to verify your identity before your personal credit scores are displayed. If you sign up through the app (available in the Apple and Google Play stores) you can sign up without accessing your personal credit and no SSN is required.

      While we are primarily designed so business owners can check and monitor their own credit, we believe it’s important for entrepreneurs to monitor business credit on key clients, vendors and suppliers. After all, if they don’t pay invoices they owe to your business, or if they can’t ship materials you need or go out of business, your business could be at risk. That’s why in our premium subscriptions we offer the ability to track business credit on up to five other businesses.

      I hope this is helpful.