Customer Credit Checks

What a credit report tells you

A business credit report shows years in business, revenue range, payment history with other suppliers (in days late or early), public records (liens, judgments, bankruptcies), and a numerical risk score. The most actionable element is usually the Paydex-style payment score: a score below 70 means the business habitually pays late.

For consumer-facing services or sole proprietors, you may need to use a personal credit check (with the customer's written consent) instead of a business report. Personal scores under 650 correlate strongly with late payment.

When to require one

A defensible policy: any new customer requesting net terms above \$5,000 (adjust threshold to your business size) gets a credit check. Below the threshold, ask for a deposit or use credit-card payment. Above an even higher threshold (e.g., \$50,000 of exposure), require a personal guarantee or shorter terms.

Reports cost \$50-150 each — trivial compared to the cost of one bad debt. Many service businesses pay this for themselves once a year and refer to that template when sizing customer risk.

How much underwriting is enough

Match the depth of underwriting to the size of the exposure. For a customer that will buy $5k a year on net-30, a public records check and a quick reference is enough. For a customer signing a $500k annual contract, full Dun & Bradstreet or Experian Business credit reports, financial statement review, and trade references are appropriate. The cost of a bad-debt write-off scales with exposure; the cost of underwriting should too.

Pay attention to suit and lien data. A customer with active judgments, federal tax liens, or recent bankruptcies is a meaningful credit risk regardless of what the score says. Most B2B credit scoring services flag these as 'severe derogatory' items; a single one is usually enough to require a deposit or COD terms.

For new businesses with no credit history, ask for the personal credit and personal guarantee of the principal. Most small-business owners will agree because they have no other path to credit; the ones who refuse are giving you useful information about how seriously they intend to honor their obligations.

Build credit-check requirements into the sales workflow so they happen automatically rather than as a finance-driven afterthought. The sales hand-off should include a 'credit approved' signal before any contract gets signed; without it, the finance team is constantly playing catch-up, and the business takes on unvetted credit risk in the meantime.