Extending Credit to Businesses? If so, You Don’t Want to Miss this Review of the Current State of Commercial Credit & How to Minimize Risk

We’re almost a year-and-a-half into the pandemic and it continues to impact the U.S. and global economy. As businesses pivot and adjust to the new normal, many are experiencing financial stress due to labor costs, supply chain issues, and the pandemic’s effect on their sales. As a result, businesses that extend credit have a new set of red flags to look for as they strive to protect their bottom lines. Thankfully, there are effective tools that commercial creditors can use to monitor their portfolios and accurately assess the creditworthiness of businesses.

Currently, all the components for strong small business growth exist. Consumers, bolstered by government stimulus programs, have returned to spending. However, that has created challenges in some areas of the economy where demand has exceeded the supply. To satisfy growing consumer demand, many businesses are increasing production and purchases. As a result, supply chains are being stressed as demand increases, in many cases extending delivery times and creating parts shortages.  These and other factors can affect your customers’ cash flows and their ability to meet your terms.

At the same time, consumers’ fear and confusion over the PPP program, stimulus checks, and unemployment benefits created the perfect storm for fraudsters to creatively take advantage of businesses and the people who patronize them.

Nevertheless, investors have a great deal of confidence that the economy will completely recover and small businesses, in particular, will be bolstered by inevitable growth. 

In the first quarter of 2021, commercial lending experienced stable and relatively low delinquency rates, however, portfolio growth was far below yearly targets. Moreover, since the beginning of the pandemic in April 2020, commercial credit has been declining due to concerns that delinquencies would rise dramatically as loan modifications and stimulus programs come to an end.

The impact on small business cash flow is expected to be felt this fall when fewer customers can meet their invoice commitments. The debt pressure businesses and their owners will experience is likely to continue through the end of the year unless regulators and lenders take action to soften the blow of expiring stimulus programs.

Given these anticipated impacts, commercial creditors must stay on top of their business customers’ financial situations by regularly reviewing business credit reports. Timely and regular business account monitoring will allow you to safely support your customers’ needs and help you maintain the sales growth your company needs for its financial health.  Effective credit decisioning is a benefit to both the creditor and the debtor.

These credit reports contain a summary of detailed trade data that reveals a business’ payment history, including:

  • Business demographics
  • Public records
  • Trade and financial payment history
  • Personal credit report and FICO score on the company’s principal(s)
  • Uniform Commercial Code (UCC) filings
  • And more

Business Account Monitoring is another valuable tool that identifies risks and opportunities within your customer portfolio. Business Account Monitoring helps you monitor key customer metrics for changes to financial health, credit scores and public record filings in order to spot early signs of trouble. You can also set up alerts so you can better assist your customers with their evolving needs.

Need more information to support your business credit desicioning?  See our full suite of business credit reporting and monitoring tools.

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