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Why You Should Care About Your Suppliers’ Credit Ratings

Why You Should Care About Your Suppliers’ Credit Ratings

 By Rick Klaras December 04, 2013, Business.dnb.com

supplier-credit-check

Most business owners know how important their business credit rating is. Having an excellent business credit rating makes borrowing affordable and accessible, increases a business’s value and appeal to potential investors. It also makes it easier to build business relationships.

Why does a business’s credit rating matter so much to lenders, investors, vendors, and clients? Because it is a reliable indicator of how prompt a business is in paying its bills. Lenders and suppliers want to know they’ll be paid on time. Investors want to know that the business they’re considering putting capital into has a history of fiscal responsibility. To clients, good business credit is a sign that a company will be around for a while, and is unlikely to suddenly fold, due to financial woes.

Yes, many small-business owners know quite well how much their credit ratings matter. But far fewer take the time to check their suppliers’ credit ratings. Why is monitoring suppliers’ credit ratings important, and how can business owners do so easily?

The Weakest Link

Most businesses are reliant on their suppliers for integral parts of their products and services. Few companies own their entire supply chain, and this is especially true for small businesses. And, as technology has made the world smaller, it has become quite common, even for small-business owners, to source raw materials, inventory, or service components from providers half a world away.

The fact that many suppliers and clients are separated by such great physical distances does not make it any easier to keep tabs on the financial health of crucial vendors. Supply chain disruptions tend to spread, and business owners whose key vendors run into trouble may soon find themselves apologizing to their own customers for outages and delays.

Stay Informed With Business Credit Monitoring

Struggling suppliers have no incentive to alert their clients to that fact. Leery clients jump ship, and that is trouble for already embattled companies. So, small-business owners owe it to themselves to stay in the loop. Gathering all the pertinent information and evaluating it would take more time than most entrepreneurs have, but there is an easier way.

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