Customer Risk Growing?

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This week we’re discussing customers and credit analysis. Something often overlooked by businesses until it’s too late as they either 1. Don’t have time or the staff or 2. They do not believe this is a risk to them. Hate to burst your bubble, but no one is 100% safe from this risk in business. Better to plan and analyze in my opinion.

Extending credit to customers is a fundamental part of doing business, but failing to reassess their financial health regularly can expose your company to unnecessary risk. A recent discussion with a client reinforced the importance of conducting annual or bi-annual credit reviews. Businesses that neglect this process often face unexpected defaults, cash flow disruptions, and collection challenges that result in them losing money in the long run. By proactively reviewing customer creditworthiness, companies can identify potential risks early, adjust terms as needed, and ensure they are extending credit to financially stable customers.

Regular credit reviews aren’t just about managing risk—they’re about optimizing working capital. A company that continuously evaluates its customers’ financial stability can make smarter decisions about credit limits, payment terms, and collection strategies. The process should be structured, data-driven, and supported by the right tools.

Here’s a few tips I’d offer up to anyone I discuss this area of business with 👇

• Approaching Credit Reviews Effectively

  • Start by assessing a customer’s payment history with your company. Are they paying on time or slipping into late payments? How much business are you still doing? This is a big adjustment I normally recommend. Businesses setup and do $3M in business for a couple of years and then things change either up/down. So if the level of business drops to $500k you need to adjust limits. Same goes for if business increases.

  • Review financial statements if available, including profit & loss statements and balance sheets, to gauge liquidity and overall financial health. Some companies have this on their website or if you use one of the tools listed below like D&B that detail is often included for free review. Do you know what to look at on financials?

  • Use external credit reports to get a broader picture of the customer’s financial standing beyond your own data. Here’s some recommendations below, but I highly suggest this be a small investment made if you are doing any volume of business monthly/annually.

• Tools & Software to Streamline Credit Reviews

  • Dun & Bradstreet – Provides business credit scores, risk indicators, and financial stress models to assess customers. Can use alerts to monitor changes such as UCC filings, change in ownership, or if risk levels change.

  • CreditSafe – Offers real-time credit risk data, trade payment insights, and predictive analytics to help businesses make informed credit decisions.

  • Experian Business Credit Reports – Delivers in-depth credit history and payment trends of businesses.

  • Equifax Commercial Solutions – Helps businesses assess creditworthiness with trade and financial data insights.

  • Internal ERP or Accounting Software – Many systems, like NetSuite, SAP, or QuickBooks, have credit management features to track customer payment behaviors. Use them.

• Adjusting Credit Limits & Payment Terms

  • If a customer’s financial health is improving, consider increasing their credit limit to support mutual growth. Do this if the business is growing, but don’t just increase a limit if there’s been no change.

  • If risk indicators are rising—such as declining revenues or deteriorating payment trends—tighten payment terms, lower credit limits, or switch to prepayment. You have to be cognizant of what’s happening with your customers.

  • If terms aren’t contractually fixed, explore alternative structures like requiring deposits, offering early payment discounts, or adjusting invoice due dates. You want that cash as quickly as possible so you can use it. If you’re giving the OK to let customers pay you in 60 or 90 days, I’d suggest reviewing if this makes sense for your business model.

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Regular credit reviews keep your business financially stable while maintaining strong customer relationships. They help prevent bad debt, ensure liquidity, and position your company for long-term growth. By making credit analysis a structured, ongoing process, businesses can protect cash flow and reduce exposure to unnecessary financial risk.

I hope this helps you and your team out in a positive way this month or week! Start implementing a strategy though if you don’t have one in place.

BG