In business, managing credit and assessing the financial stability of other companies is crucial to safeguarding your interests. Whether you are a small business owner or part of a larger corporation, understanding your clients and partners’ creditworthiness can be the difference between success and financial pitfalls.
The increase of zombie businesses in Australia indicates a growing risk for any business offering trade credit terms. Now, more than ever, the importance of credit management has never been more apparent.
That’s where a comprehensive B2B credit monitoring service can make all the difference. Here are five crucial aspects to consider when choosing a credit monitoring service or credit risk assessment solution for your business.
B2B credit monitoring service checklist
1. Comprehensive business credit scores
Access to comprehensive business credit scores is a cornerstone of effective credit monitoring. Business credit scores provide a holistic view of a company’s creditworthiness, helping you identify potential risks and make informed decisions.
A reliable service should encompass various factors:
- Late Payment Risk – Late payments can be a red flag, indicating the likelihood of receiving what’s owed to you. A robust credit monitoring service delves into late payment data to gauge the probability of timely repayments.
- Failure Risk – Understanding the likelihood of business failure within a given year is vital for making informed credit decisions. A good credit monitoring service should factor in this risk, giving you insights into a company’s stability and, thus, capacity to fulfil its financial obligations.
- Payment behaviour – A comprehensive credit score goes beyond the basics and delves into a company’s payment behaviour. It provides a detailed picture of how a business manages its financial obligations, giving you a better understanding of its creditworthiness.
With more comprehensive risk data, business credit scores become more dynamic and are better equipped to identify potential financial threats.
2. Wide coverage of business entities
Your chosen B2B credit monitoring service should cover a wide range of entities to provide a comprehensive view of the business landscape. Credit monitoring services should include in their database the following:
- Incorporated and unincorporated entities
- Trusts, and
- Marketing and collections data from said entities
A service that offers a wide range of coverage ensures that you have access to information on various types of businesses, minimising your blind spots and enhancing your decision-making capabilities.
3. Accurate business enquiries tracking
Correctly tracking credit enquiries is essential because incorrect counts can impact how a potential client/debtor is viewed for credit and affect the accuracy of a debtor’s credit standing. Ensure that your credit monitoring service accurately tallies business enquiries to maintain the integrity of your credit assessments.
4. In-depth trade payment data gathering
Trade payment data provide a direct look into how a company manages its financial obligations. The information gathered by your credit monitoring service should be accurate and collected directly from business debtor ledgers (i.e. gathered from creditors’ list of who owes them money, if they paid on time and what’s outstanding). This approach ensures the trade information you receive is truthful and comprehensive.
In contrast, some credit services use the reverse method, which merely looks at how many payments a business (debtor) has made and their values, which might not provide a clear picture of their financial stability.
Ensure that the information collected by your credit monitoring service flows through to the credit scores they provide, giving you an accurate and up-to-date snapshot of a business’s financial health.
5. Seamless integration with accounting software
For streamlined and efficient cash flow management, it’s crucial that credit monitoring is integrated seamlessly into your accounts receivable software.
This integration ensures a real-time connection between market-based credit risk data and your internal debtor data for easier credit risk management.
Picture this: Your accounts receivable dashboard displays every debtor’s credit risk based on live in-market payment behaviour. This level of visibility allows you to be proactive in handling debtors and making decisions that ultimately impact your cash flow.
In conclusion, selecting the right B2B credit monitoring service is a crucial step in managing your business’s financial health and security. Look for comprehensive business credit scores, wide entity coverage, accurate business inquiries counting, reliable trade payment data gathering, and seamless integration with your accounts receivable software.
By making these considerations, you can better identify potential risks and make well-informed financial decisions.
Get free business credit scores and start effectively monitoring your customer’s creditworthiness
Sign up for a free trial of ezyCollect Credit Insights and get three free business credit scores for monitoring. We partnered with Illion to give you comprehensive credit risk data. See for yourself how integrating credit management into your accounts receivable platform can easily reduce your risk of late payments and bad debts.