At this time of year, you don’t want anything to get in the way of getting the inventory you need RIGHT NOW! Whether your store or ecommerce website has been in business for five months or five years, when you ask a product vendor for payment terms, they will want to check your credit history. This practice is not only legal under the FCRA (Fair Credit Reporting Act) but it is a fair and usual practice. Suppliers must check credit because, for them, granting terms is no different than giving a business loan.
When it comes to checking the credit of individual specialty stores, finding credit information can be challenging. Because while information about a store owner’s personal credit is available through credit bureaus, unless the individual gives permission, vendors are not legally permitted to review personal credit. And the truth is that reliable credit information about smaller businesses is not plentiful.
Because of this, credit approval can sometimes take longer than either the vendor or the retailer would like. One way that retailers can help to speed up the process is to provide up-to-date and accurate “Credit Sheets.” According to most vendors, Credit Sheets and/or Credit Applications are essential and should include at least the following information:
- Billing address, telephone and fax numbers
- Shipping address, telephone and fax numbers
- Email address
- Type of entity (Corporation, LLC, Partnership, etc.)
- Years in business
- DUNS #
- Bank information (name, address, telephone, fax, account number)
- Owner’s Information
- Industry trade references (specifically, other vendors with whom you have terms)
Vendors will send a form to the provided references and trade associates asking specific questions. For the most part, here is the information they will ask for:
- Years in business
- Highest credit given
- Date of last invoice
- Terms given
- Does the customer pay within terms
According to a recent survey conducted by The Credit Collective, LLC, a consortium of children’s products vendors, the most important pieces of information on a Credit Sheet are: years in business, bank information and trade references. In the same survey, over 80% of the vendors said they rely heavily on trade references. Things that are most closely looked at are:
- Terms with other vendors
- Credit limits with other vendors
- Payment histories with other vendors
- Pre-Collections & Collections Histories
To save time I always recommend that retailers give a pre-printed Credit Sheet to vendors along with their purchase orders. However, I have learned that many retailers unknowingly hurt themselves by providing inaccurate, incomplete, or outdated information.
Credit Sheets should be reviewed periodically to ensure the correctness of information and that trade references are still pertinent. Is the shipping address completely correct? Has the billing address changed? Are all of the trade references still in business and current? These are just a few of the questions that a retailer should re-evaluate on their Credit Sheet.
© 2011 Cathy Donovan Wagner, RETAIL Mavens