If your vendors don’t have enough capital to stay in business, your business can’t capitalise 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’ll be able to deliver services or goods that you need.
Remember, they are a critical link in your supply chain and your ability to deliver what your customers want and need.
Do a credit check when necessary
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’re unsure about a new vendor, take the time to do a credit check.
Online resources for credit checks
Dun & Bradstreet is a solid source of credit information on companies. Basic information from the website (dnb.com.au) 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 Veda Advantage (veda.com.au), Experian (www.experian.com.au) or Tasmanian Collection Service (tascol.com.au).
Vendor payment history
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 their standing and available credit.