Comments Off on 5 Things You Need TO Know About Small Client Business Failures

If many of your Customers are Small Businesses you will need to protect yourself in different ways than you would for larger companies. In a nutshell, this is because small businesses are usually defined by a single individual or a small group of people. The dynamics of financial success are much different than for large corporations and if one of these companies happens to be your customer and runs into financial trouble you need a completely different set of tools to get paid.

Here are 5 Keys to dealing successfully with Small Businesses. While there are no guarantees in business, you will greatly improve your ability to get paid when one of the companies suffers a financial setback.

1. Small Businesses Are Small For A Reason. 

Usually it is lack of resources. Occasionally it is because the owner wants things small. A lack of resources, usually well disguised, will hurt you. Most startups lack the resources to last 2 years and rely on business growth which may or may not happen. They will, however, continue to look good until the startup money runs out. Credit checkers are sometimes misled by bank accounts with substantial balances in the early days of a new business. That’s why new bank accounts don’t provide enough information.

2. Some Small Businesses are built on a Wing and a Prayer.

You shouldn’t be the one that needs to pray. While some of these shoestring businesses will grow and prosper, don’t bet on it. Looks can be deceiving, especially when the Owner makes every effort to be deceptive. This is business. There is no need for trust. Check everything.

3. The Chances Of A Small Business Defaulting On Your Bill Are High. 

Half of all new businesses are gone in two years and 9 out of 10 disappear within 5 years. You must be careful in evaluating the long range or even the near future prospects of small businesses. Check their facilities. Janitorial services are often the first to suffer. Call Accounts Payable and see if somebody answers or you are constantly sent to voice mail. Check references and especially bank accounts.

4. Solvency can easily be faked with a Small Business. 

Dunn and Bradstreet or Experian won’t have much to go on. In fact, much of the information that shows up in these reports on small businesses are provided by the owner in an over the phone interview. Trade references are easily asked to provide exaggerated accounts of solvency and, sometimes, fabricated. You may be calling a relative, friend or employee. You should independently look up the contact information on referenced vendors and speak to somebody in accounts receivable. You may have to fax over a copy of the request but you have a much better chance of obtaining real information. Banks don’t generally fabricate anything, but make sure the account is the correct account for this business. Ask for a list of the check signers and be sure the name of the company is exactly the same. Finally, be suspect of any account less than two years old. Make sure this business does not bounce checks.

5. Your best protection, if you can get it, is a Personal Guarantee. 

In fact, a personal guarantee from the owner is the only way you can even hope to secure recovery of a business debt. Often the actual business is financially week or even a shell with the assets in the personal possession of the owner. When things are going good, the Company will look good but, in hard times, the company can quickly become insolvent. This is not by accident. People want to protect their assets and will be very willing to grant a lean on a business that can be emptied of assets easily and placed into personal accounts. You cannot go after these accounts without a Personal Guarantee.

Small Businesses can be great customers. Your job is to carefully check them out and make sure they have what it takes to remain in the black.


Executive Credit Management is a full-service Debt Collection and Applicant Screening agency with over 20 years experience located in Central New Jersey. We provide excellent service in the following areas: Employment Screening, Business Screening, and Tenant Screening. Executive Credit Management belongs to a number of Skip Tracing databases and offers services to help locate and confirm the current address of missing debtors. Other services provided are: litigation evaluation on all lawsuit decisions, improvement of the quality of the applicant data, Lawsuit Monitoring, Handling of Debtor Disputes. Executive Credit Management features the best Call Monitoring System in the Debt Collection industry.