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If
your vendors do not have enough capital to stay in business, your business
cannot capitalize on them. Making sure that your subcontractors, suppliers
and vendors have good credit standings and enough credit to remain in
business provides a degree of certainty that they will be able to deliver
services or goods that you need. Remember, they are a critical link in your
supply chain and ability to deliver what your customers want and need.
Before
you begin a major project, order or expansion, decide whether a credit check
is necessary. Can you easily switch or substitute the vendor? What kind of
history do you have with the vendor? If finding another vendor is difficult
or if you are unsure about a new vendor, take the time to do a credit check.
Dun
& Bradstreet is a solid source of credit information on companies. Basic
information from the website (http://sbs.dnb.com) is free. For more
comprehensive information to more than 13 million companies, you can pay a
fee. You may also want to check with one of the major credit reporting
agencies, such as Equifax (www.equifax.com), Experían (www.experian.com) or
TransUnion (www.transunion.com).
For
companies in the United States, check with the secretary of state office for
the vendor’s particular state. The office may have a uniform commercial
code report on your vendor. These reports are filed when a company is a high
credit risk. The report will let you know whether creditors have claims on
the vendor’s inventory or assets.
Another
safeguard is to check the vendor’s payment histories with its suppliers.
Ask the supplier for references and check them. If possible, visit your
vendor’s facility to get a sense of how the business is run.
One
of the best security measures is to ask for a copy of the vendor’s
financial statements or a letter from the vendor’s banking institution.
This will give you the best sense of his/her standing and available
credit.
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