C2C Resources Releases Top Red Flags when Extending Payment Terms

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Deciding whether to extend payment terms to businesses is an important aspect of running a business. C2C Resources provides the top problems businesses can face when extending credit.

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Make sure your customer has a good payment reputation; otherwise it could become a collections nightmare.

C2C Resources, a leading Atlanta-based commercial debt collection agency, released today a list of the top red flags when reviewing business credit applications in-house to determine whether to extend a customer payment terms for their order.

Todd Tinkler, President of C2C Resources, believes that companies can put too much weight on the positive relationship that they have on an individual level with purchasers. This can lead to more leniency when reviewing the customers’ credit histories and the credit applications.

“This is where companies can lose out,” explained Tinkler. “It is always best practice to go through all of the steps of the credit application: checking that the information is correct and contacting the trade references. Make sure your customer has a good payment reputation; otherwise it could become a collections nightmare.”

C2C Resources believes the following are the most common red flags that businesses can come up against when going through the payment term credit application process:

1.     No Credit History

Unlike consumer credit reports, commercial credit reports are available to anyone. It is best practice to always pull a credit report, and Tinkler believes this is important to improving business cash flow. By accessing a credit report through common providers such as Dun & Bradstreet, Cortera or Experian, businesses can receive the company’s credit score and often an explanation of how to interpret the information.

Tip: If you are considering providing a significantly large line of credit to a customer, pull multiple credit reports because providers can use different criteria.

2.    None or Few Trade References Provided

A trade reference is a supplier that has worked with the customer before and can confirm their payment habits. While a new business may not have as many relationships with other companies, only one trade reference on an application that requires four is still a red flag. Younger businesses may not have the cash flow to pay their bill on time, even with the credit terms.

Tip: Remember that customers will normally only list their best commercial relationships as a trade reference.

3.    Missing Form Field

Most credit applications require a basic level of information for the business to use to conduct their research. This can include:

  •     Company name
  •     Company address
  •     EIN
  •     Banking information and contact
  •     Trade references

If a business has difficulty providing these, it should be a red flag. Also, always verify that the information is correct. Check the company website and the information on record with the Secretary of State website for each state to verify that what they provided is correct.

4.    Inability to Provide Financial Information that Demonstrates Adequate Working Capital

Deciding whether to provide credit to newer companies can be a challenge because newer businesses do not have established credit. If a business has little to no credit history, their financials should show evidence of sufficient cash flow or working capital.

Tip: The business should know and be comfortable with the management teams’ experience or ability to execute when making the decision on whether to extend credit to a newer company.

About C2C Resources:

C2C Resources is a global Commercial Debt Collection agency headquartered in Atlanta, Georgia. The company collects commercial debt on behalf of their over 20,000 clients and is considered one of the top agencies in the country. The executive team at C2C brings more than 60 years of experience helping businesses collect their accounts receivable.

C2C’s powerful combination of Profit Maximizer, InfoMax Collection System, and Legal Forwarding Edge, can help your company be more effective with your own in-house collecting and maximize recovery of accounts turned over for collection.

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Trey Cefalu
C2C Resources
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