Wholesale Distributors and Suppliers: Trade Credit - Back to Basics

The last few years have been a significant challenge for many US businesses. Even healthy small businesses have often been constrained by the lack of credit available to grow their businesses. With access to credit from traditional lenders significantly limited, many suppliers and distributors have been faced with a choice – turn away business because customers' bank credit lines have been reduced (or eliminated) or go back to the basics of wholesale business and offer credit terms to customers. It can be a tough choice in these uncertain times, but for the supplier that knows how to manage the risks of offering trade credit to their customers, as well as how to manage the collection process for accounts that become delinquent, the choice can make the difference between growth and stagnation (or even decline) of the supplier's business.

Offering trade credit can be an invaluable tool to win new business and to sustain your existing customers during a tough economic time. However, if not managed properly, providing trade credit can put your company at risk and significantly affect your own cash flow. Having access to business and consumer data to make good credit decisions is essential. It can also provide unique insights into whether a delinquent account can be saved or should be turned over for collections.

Business reports from D&B, Experian and Equifax can give you critical data into the current health of a customer's business. If your customers are unincorporated businesses or you require a personal guarantee, you have a permissible purpose to use the owner's credit report to make your trade credit decisions. Do you use the PRBC Consumer Report to understand the customer's bill payment history or to pick up a personal bankruptcy or eviction? Is there activity in the customer's bank account that would be an indicator that the customer is not such a good credit risk? Are there any suits, liens or judgments that would indicate financial problems of the owner that could affect his willingness or ability to repay your business?

Providing trade credit to creditworthy customers is smart business if your business is making smart credit decisions. Access to business and consumer data to know your customer before extending credit and regular monitoring of those customer accounts can provide your business the insights to grow and prosper, even in a tough economy.