Work Smart With Vendors

From Wells Fargo.com
February 7, 2005

-Decide if a credit check is necessary
-Order a credit report
-Ask for a uniform commercial code filing
-Check the vendor's payment history and customer referrals
-Ask for its financial statement

Before you embark on a major project, you may want to be sure that your key vendors, suppliers or subcontractors have sufficient credit to remain in business or make timely deliveries. Ray Silverstein, founder of Chicago-based PRO, President's Resource Organization-a nationwide network of peer groups comprised of small business owners-explains when and how to check on a vendor's credit record. "When the vendor doesn't have capital, you cannot capitalize on them," he says.

Deciding whether a credit check is necessary depends on how easily you can replace the vendor, according to Silverstein. If you expect difficulty finding an alternate source or plan to make a major purchase, you should invest the time and effort of conducting a credit check, he says.

Silverstein suggests that you order a credit report from Dun & Bradstreet. Its Web site for small businesses (http://sbs.dnb.com) has a searchable database of 13 million U.S. companies. You receive basic information for free and can pay for more comprehensive reports. You could also check with one of the major credit reporting agencies, such as Equifax (www.equifax.com), Experían (www.experian.com) or TransUnion (www.transunion.com). However, "Dun & Bradstreet is much more business-oriented than credit agencies," Silverstein says.

You might also ask your state's secretary of state office if it has a uniform commercial code (UCC) report on a potential key supplier, Silverstein says. He adds that lenders file UCCs on companies with high credit risks. The report will reveal whether creditors have claims on the potential vendor's inventory or assets, Silverstein says.

Next, Silverstein suggests you check the vendor's payment histories with its own main suppliers. Ask them if the business delays its payments or pays on time. You can also visit the vendor's facility yourself to get a general feel for its financial condition or ask the firm for referrals from its present customers, he says.

Finally, you might ask the potential provider for a copy of its financial statement. You could also request that its bank send you a letter describing the availability of its credit line, Silverstein says.