The Importance of Credit Reports

The Importance of Credit Reports

What is a credit report and what is its importance to a business owner? These are very important and essential questions that every business owner in South Africa should know the answers to. A credit report for a business owner is when your business evaluates the credit risk of a potential client. The credit information provided by the potential client will help the business owner decide whether or not they are willing to provide the client with goods and services on credit. This is essentially giving the business a glimpse into how much trust will be placed on the client.

All credit applications should be in line with the National Credit Act of South Africa. All potential clients to a business should be required to submit a credit report and random checks should be made on current clients to ensure consistency and honesty. Consider the credit report to be like an interview that needs to be aced before you can be offered the job. It is a necessity that the client needs to complete in order to prove they are worth the risk.

Why should any business owner require a credit report for any potential client? There are many things that can go wrong if a business owner fails to check on every client. Client non-payment is a possibility with someone that hasn’t been properly checked out. If a credit report were to come back with hints of potential issues, the business owner can them decide to deny, or adjust the terms of contract. Any business owner can be proactive about potential monetary issues that could happen. Any type of non-payment can negatively affect the cash flow of a business and that could directly affect the success of the business.

As a business owner, surprises are not exactly welcomed. With proper credit reports on all potential clients, you will know what to expect based on the client’s financial history and prior practices. You can instantly determine whether you want to take the risk on a client or if there are more steps you want to take before you do business with them.

The bottom line is to ensure that every client you take on is given a credit application and the information you receive from it is used to further guarantee the stability and success of your business. Be proactive and you will not be caught off guard by payment issues.