Why Small Business Owners Don’t Use Credit Reports But Should

Getting paid on time is a cornerstone of success for all companies, regardless of size. However, maintaining a healthy cash flow is especially important for small businesses; just a handful of late or missed payments can be devastating.

What’s problematic is that small businesses are overlooking a simple risk management tool that can help mitigate or avoid this issue altogether: credit reports.

A basic company credit report helps small business owners identify a potential non-paying customer before entering into a business relationship by providing valuable insight into a company’s payment history, credit worthiness and financial health. Each report includes important information on a prospective client, including how quickly the company pays its bills, how much credit it should be extended and if there are any legal proceedings against the company.

Despite the myriad benefits of a credit report, a lot of small business owners don’t use this financial tool as a part of their risk management strategy. In fact, we’ve found that a lot of companies that use credit reports – many of them small businesses – are first time users.

Here are the common misconceptions about credit reports that small businesses believe and why they aren’t true: 

• Credit reports are too expensive – While purchasing a credit report is a cost center, a string of non-paying customers can be even more costly. Subscription-based credit reporting services offer an affordable way for small businesses to benefit from ongoing access to credit reports versus paying for individual reports.
• They don’t offer that much useful information – It’s a myth that credit reports only provide topline information, like a credit score or debt profile. Well beyond the credit score, small business owners can glean a lot of valuable insight from a credit report, such as who is running the company, how much outstanding debt the company holds, whether or not there are any legal judgments or tax liens. Credit reports are also surprisingly easy to use and certainly not reserved only for a financial or credit expert.
• It’s just not a tool small businesses think to use – Many small business owners just never thought about using a credit report, perhaps because they are too busy running their company or think that their business isn’t large enough to reap the benefits. But, in reality, credit reports are an extremely effective and valuable tool for any size business – not just for large corporations.  

The most important thing that a small business can do to protect itself is to make sure that its customers are who they say they are and that they will pay their bills. Once small business owners discover the benefits of using a credit report, they will quickly realize that it’s one of the most practical and beneficial tools in their arsenal.

About the Author
Matthew Debbage is the President of Creditsafe’s U.S. operations, overseeing the company’s expansion into the U.S. market. Creditsafe is the world’s most-used supplier of online company credit reports. Nearly 5,000 companies in the U.S. use its credit reports, ranging from small businesses to large, global concerns like Staples, Ryder and Nestle. Debbage, with more than 15 years of experience in market entry strategies, has successfully led the research, planning and launch of a number of operations in markets around the world, making companies more efficient and profitable.