Getting a new customer feels great, but you need to be confident that they’re going to pay their bills and do it on time. Similarly, you need to choose the right suppliers to supply the best goods and services at the most suitable prices and within the right time frames. We’re talking about having reliable suppliers for your specific business needs. Every business has great plans in place for growth, and you wouldn’t want anything to hinder your growth. This is why it’s important to safeguard your business by gaining insight into any business partner’s creditworthiness before getting into any contract.
In your business, you need to target the right prospects who are most likely to pay their bills faster to ensure reliable cash flows. Many businesses continue to struggle with unpaid invoices and overdue payments. This cripples the operations of the affected businesses. Most of the time when payments are made late, you’re always left with no choice but to pay your suppliers late because of your cash flow issues. These delays can significantly impact your company’s performance and you may find yourself spending a lot of time chasing outstanding payments. Your cash flow becomes affected and so are your plans for future growth.
Therefore, doing research on your customers and suppliers is of utmost importance. Remember, your goal is to build a sustainable business, and this partly means extending credit to customers that are able to pay back. You need to be sure about how much credit you can afford to extend and making sure to reduce your exposure to risk. In this article, we’ll discuss why it’s important to do your research on customers and suppliers to protect your business and reduce its exposure to risk.
Your supply chain is important
Every business wants to ensure uninterrupted service to its customers. Delayed services can significantly affect your business performance. If you depend on specific suppliers to provide various goods or services that are essential for your operations, you need to make sure you only choose the best supplier. You need to avoid delivery delays as much as possible. This is why businesses that experience delayed deliveries from their existing suppliers tend to look for another supplier with the same quality products but delivers faster.
If you’re running a dedicated production line where you’re dependent on a specific supplier to provide the products to your customers, your goal should be having an uninterrupted service. This ensures that you’re reliable. This calls for doing research on your potential suppliers focusing on their financial health and business sustainability. By doing that you’ll be assessing and monitoring the risks associated with them to be sure of reliable and continuous service.
Additionally, doing your research on critical suppliers will give you more insights on their stability. You want to partner with experienced suppliers, especially if you’re looking to enter into a long-term contract. You must check the supplier’s credit history to identify their stability.
Reliable financial health check of your customers and suppliers
It’s crucial to obtain a reliable financial health check of your customers and suppliers. By gaining insight into the creditworthiness of your customers and suppliers you will know the perfect person to do business with, thus safeguarding your business.
A business report shows the financial history of a company through its various filed accounts, alongside other critical information such as the history of the directors, adverse information, and previously associated companies.
Every time you approach a supplier or a potential customer, they will sell you the world. A supplier could tell you how reliable and financially stable they are, or a potential customer could tell you how able they are to make timely payments. This is why you must do due diligence by obtaining a business report from a reputable credit bureau which is the fastest and most reliable way to get a clear picture of the financial status of your clients and suppliers.
With these business reports, you instantly gain insight into your client’s and supplier’s corporate identity and legal status. Therefore, you’ll be better equipped with information to know whether to get into a contract with a particular client or supplier and the risk you expose your business to. in the business report you will get to know the credit score of an organization that shows its viability and further warns of the risks you might get exposed to so that you can make an informed decision.
Many credit bureaus provide business reports by using different weighting systems and statistical methods to take into account certain characteristics that can affect the business performance including the size of the company, ownerships, financial data, demographics, public information records, industry analysis, and legal judgments. These bureaus further provide a global risk demonstrating an organization’s creditworthiness and the risk to become insolvent.
The report further outlines credit limit recommendations showing how much credit that should be outstanding at any one time. Once you’re aware of the credit limit and creditworthiness of your clients you can ensure good cash flow by targeting the right customers who are highest likely to make timely payments. Additionally, you will ensure uninterrupted service delivery by monitoring the creditworthiness of your critical suppliers. Also, you will be in a better position to act promptly in case you detect some foreseeable delivery disruptions from your supplier.
Keep an eye on your existing customers and suppliers
It is recommended to add your clients and suppliers to a monitoring list that will send you notifications of any changes in their financial status. This will help you react accordingly way before your operations are affected. By monitoring your clients you will determine their risk in case it changes and help you decide on whether to adjust how much credit you can extend to them.
Track their payment patterns
By doing constant research on your customers you will get to track their payment patterns. You will identify those with consistent payment patterns and those that are not consistent. Various reliable credit bureaus provide purchasing reports that indicate how long a client takes on average to pay their bills. These reports are generated from a collection of thousands of invoices of companies involved in an information pool. This data is regularly updated to have the latest payment behavior.
The reports show the sizes of accounts the participating companies have owed invoices to, the average number of days they’ve taken to pay, and how this compares to the industry average to determine whether this has improved or become worse. You will get to understand beforehand how they will make payments to you when they become your customers.
Know who the customers and suppliers are
Before getting into a business relationship with anyone, you need to know who they are. By doing your research you will get to know whether they are who they say they are. One of the worst mistakes you can make in your business is getting into a contract without doing your due diligence. You need to look into their past to know how it was like as an individual.
Conclusion
Running a business on a daily basis is challenging. It can become even harder if we make certain grievous mistakes that can affect your cash flow and continuity of service delivery. Doing your research on customers and suppliers is of utmost importance in your business. This involves obtaining business reports on companies that you want to do business with. These reports show the creditworthiness of a company. You will get to know whether a particular supplier is financially stable as they claim to be. Remember, you want to enter a contract with a reliable and stable supplier to ensure successful service delivery to your clients. Also, you need to work with clients who have the ability to pay for goods or services on time to ensure proper cash flow in your business. Doing your research on customers and suppliers will help you determine how much credit you can afford to extend and how much risk you’re exposing your company to.