Peace of mind

Do you have a deadbeat client?  How about a critical supplier that’s in danger of going belly up?  How do you know if you are dealing with a business partner that’s in precarious financial health and about to leave you in the lurch? 

Twice this summer, my small company has seen the need for an independent financial risk assessment.  In one case, one of our major clients wanted the assessment on us to be sure we are worthy of its continued business.  In the second case, we pulled a report on a client that was way overdue in paying our invoices.  In both instances, we turned to the respected reports of Dun and Bradstreet (D&B).

For years, D&B has been the premier keeper of all types of data on companies in virtually every industry.  Anyone can purchase the data and feel fairly confident of its accuracy.  To get a financial risk assessment on a specific company, go to http://www.dnb.com and query on the company name.  For slightly more than a $100, you can get a good enough snapshot of a company to know if it is on solid financial ground or if it’s a financial risk to do business with that company.

How could you use this information?  Well, let’s look at the two cases I mentioned above.

My firm Currid & Company does business with a number of large corporations.  In renegotiating a multi-year service agreement with one of our clients, that company wanted to know if we were likely to stay in business long enough to fulfill the terms of the agreement.  With a D&B report, the client learned we are a 12-year old company with stable leadership, virtually no debt and a penchant for paying our bills ahead of time.  We are in the lowest risk categories for “financial stress” and “credit capacity.”  We have no lawsuits or liens against us.  From this, the client can conclude we are good citizens when it comes to paying our suppliers and subcontractors, and there’s little fear we will go out of business tomorrow for lack of funds.  The client can feel comfortable that we’ll be around to work its jobs for years to come.

In the second case, we learned our lesson about the value of D&B reports the hard way.  We began working for a client last winter and let that company ring up a sizable bill over several months.  When we began invoicing for services and supplies, the client was remiss in paying.  Thirty days.  Sixty days.  Ninety days went by with no check in the mail.

When we ordered a D&B risk assessment report on the client company, we learned (too late) that the company has a terrible history of consistently paying late.  In fact, this client exceeds the industry norm for late payments, and is in a high-risk category for financial stress.  In fairness, the report does say, “The Financial Stress Class indicates that this firm shares some of the same business and financial characteristics of other companies with this classification.  It does not mean the firm will necessarily experience financial stress.”  That’s little consolation when we have done the work and have no payments to show for it.

Had we known this company had such a poor history of paying its bills, we probably would have negotiated different payment terms.  More money up front, immediate payment for supplies, payment for one milestone before work began on another etc.  Or maybe we would have passed on doing the work.

No one wants to learn a financial lesson the hard way.  If you are working with a new service provider, supplier or client and there isn’t yet a good measure of trust between you, it’s worth buying an inexpensive D&B report to get a little knowledge of your new partner’s financial risk factors.

Linda Musthaler is vice president of Currid & Company.  You can write to her at mailto:Linda.Musthaler@currid.com