Credit Risk by the Numbers
Evaluating the credit worthiness of your customer must go beyond the initial credit application and review of a credit report. Successful credit management requires ongoing monitoring and maintenance – the health of a business can change quickly.
A company’s corporate status could change for a multitude of reasons, including a change in the company name, the dissolution of the company, neglecting to file an annual report or changing the formation type.
- 23% of businesses experience a change in their corporate status with the Secretary of State.
- 13% of businesses change their name and over 10% of businesses dissolve or close their doors.
Inadequate cash flow plagues companies across all industries. Ineffective lending and collecting processes can hinder a company’s ability to produce and pay for products and services.
- 8% of businesses close due to inadequate cash flow.
- 30% of start-ups fail due to poor credit granting processes & inadequate borrowing practices.
New & small businesses are vital to the economy, but are a much higher risk.
No one starts a company with the thought “I’m going to start a new business and drive it into the ground.” Everyone has good intentions, but good intentions don’t pay the bills.
- 25% of businesses fail in their first year
- 50% of businesses fail by their fourth year
Business bankruptcies are a risk to creditors – regardless of the state of the economy. There will always be companies, young & old, that will face bankruptcy.
For every 9 new businesses started, 2 businesses will close and 1 business will file for bankruptcy. The estimated number of business bankruptcies expected in 2015 was 24,000.
What You Can Do to Manage Your Risk
Risk: Change in Corporate Status
Best Practice: Perform routine searches/audits on high exposure accounts. If your customer’s standing with the state changes, contact your customer immediately and investigate the cause of the change, then take appropriate action(s) as necessary.
Risk: Inadequate Cash Flow
Best Practice: Carefully & regularly, review your customer’s financials, including credit reports, and implement secured transactions programs.
Risk: Default & Bankruptcy
Best Practice: Secured transactions are a cost effective way to sell to new businesses and marginal accounts. ALWAYS take steps to be a secured creditor. File a UCC on all customers and serve preliminary notices on all construction projects – don’t leave anything to chance.
- Mechanic’s Liens: Complete job information sheets at the time of contract signing. Serve a preliminary notice in order to secure your rights through the Mechanic’s Lien or Bond Claim Process
- UCC Filings: Incorporate security language in your credit application. This will allow you to become a secured creditor through a UCC Financing Statement.
There are laws to protect you, the creditor, but they can only protect you if you properly implement the required processes.
Don’t risk it, contact the experts at NCS today and secure your tomorrow!
NCS: Your Proactive Solution Headquarters
UCC Filings: In compliance with Article 9 of the Uniform Commercial Code, NCS provides assistance in the preparation, filing and maintenance of UCC Financing Statements. A properly filed UCC creates a security interest and puts you in the best possible position to get paid, in the event your customer defaults in payment or files bankruptcy.
Did you know: When NCS audits filings completed by a client internally or with another service provider, 62% of the time we find errors or omissions in the filing.
Mechanic’s Lien Filings: Serving a preliminary notice is the first step in establishing your right to later file a mechanic’s lien or bond claim, in the event of nonpayment. At NCS, wecan assist you with understanding each state’s lien laws, as well as prepare and serve preliminary notices throughout the U.S. and Canada for flat fees.
Did you know: Once a mechanic’s lien process is in place, and preliminary notices are being served regularly & properly, the preliminary notice will get you paid 96% of the time.
NCS now provides customers with comprehensive and effective credit reports, combining business trade and public record data segments from Experian, Dun and Bradstreet, Ansonia and other industry trade credit suppliers.
NCS will monitor an entity’s standing with the Secretary of State. In the event of a change in status, NCS will notify you of the change.