Operations
Run a credit check when the order size exceeds what you can afford to lose if the buyer never pays. For most small brands, that threshold sits between $500 and $1,500. Below it, prepay or deposit terms protect your margin without the cost or delay of underwriting. Above it, a credit check pays for itself by preventing one bad debt.
A basic business credit report costs $20 to $50. A detailed report with payment history and risk scores runs $75 to $150. Compare that to your exposure on the order.
Example: a retailer places a $600 wholesale order with 50 percent margin. Your cost of goods is $300. If they default, you lose $300 plus any fulfillment costs already incurred. A $30 credit check is 10 percent of your exposure. If it prevents even one in ten bad debts, it breaks even.
Now scale that up. A $2,000 order with the same margin puts $1,000 at risk. A $75 report is 7.5 percent of exposure. The larger the order, the more a credit check pays for itself.
Most brands set a hard threshold. Orders under $500 or $750 go prepay or 50 percent deposit. Orders above that trigger a credit check before net terms are approved. The exact number depends on your margin and how much cash you can tie up in receivables.
Start with free tools. Search the business name and address in your state's Secretary of State database to confirm it exists and is in good standing. Check the Better Business Bureau for complaints. Search the principal's name and business name together for lawsuits, liens, or news.
Free tools tell you if the business is real and whether obvious red flags exist. They do not tell you payment history, days beyond terms, or credit utilization.
Paid reports fill that gap. Dun & Bradstreet, Experian Business, and Equifax Business offer reports that include trade payment history (how the buyer pays other suppliers), public records (liens, judgments, bankruptcies), and a credit score or risk rating. Reports cost $20 to $150 depending on depth.
Order a paid report when the free lookup is clean but the order size justifies the cost. If the free lookup shows a dissolved entity, multiple complaints, or recent litigation, skip the paid report and decline terms or require prepayment.
Focus on three sections: trade payment history, public records, and the risk score.
Trade payment history shows how the buyer pays other suppliers. Look for the number of trade lines reporting, average days beyond terms, and the percentage of invoices paid on time. A buyer with ten trade lines and 90 percent on-time payment is lower risk than one with two trade lines and 60 percent on-time.
Public records include liens, judgments, bankruptcies, and UCC filings. A recent judgment or lien is a strong signal to decline terms. A UCC filing (a secured loan) is not automatically disqualifying but shows the business has debt.
Risk scores or ratings summarize the data into a single number or grade. Dun & Bradstreet uses the PAYDEX score (1 to 100, with 80+ considered low risk). Experian uses the Intelliscore Plus (1 to 100, with 76+ low risk). Treat scores below 50 as high risk and decline terms or require a deposit.
If the buyer has no credit file or fewer than three trade lines, treat them as unrated. Require prepayment or a deposit for the first order, then extend terms after they pay on time.
Many small brands start every new buyer on prepay terms, then graduate them to net 30 after one or two on-time orders. This avoids the cost of credit checks for small accounts and builds a payment track record before you extend terms.
GWO clients set this rule inside their wholesale portal. The system requires prepayment for a buyer's first order. After that order ships and is marked complete, the portal automatically changes the buyer's account to net 30 terms for future orders. No manual approval, no email back-and-forth.
You can add a second threshold: prepay for orders under $500, net 30 for orders $500 and up after the first prepaid order. The portal enforces both rules without involving your team.
This approach works when your average order size is small enough that one default will not damage cash flow. If your typical wholesale order is $2,000 or more, or if you sell to a channel with higher default rates, run a credit check before the first net terms order instead of relying on the prepay-then-graduate rule.
Skip the credit check and require prepayment or deposit in these cases:
Prepayment protects margin and eliminates credit risk. Some buyers will push back, but most small retailers understand that new supplier relationships start with prepay terms. Offer to revisit terms after the first order or two.
GWO builds term rules into each client's portal. You set the default terms for new buyers (prepay, deposit, net 30, or net 60). You set order size thresholds that trigger different terms. You decide whether buyers graduate to net terms automatically after a prepaid order or require manual approval.
The portal enforces the rules at checkout. A buyer who qualifies for net 30 sees an invoice option. A buyer on prepay terms sees only card or ACH payment. You do not manually approve each order.
When a buyer requests terms, the portal collects their EIN, business address, and contact information. You review it, run a credit check if the order size justifies it, then approve or decline terms in the dashboard. Buyers see the updated terms on their next login.
This removes the email back-and-forth and the risk of accidentally extending terms to a buyer who has not been vetted. The system handles it, and you see a record of every term change in the CRM.
A marginal credit report (risk score between 40 and 60, or limited trade history with some late payments) does not automatically mean you decline terms. It means you add safeguards.
Offer a 50 percent deposit with the balance due on net 30. This cuts your exposure in half. If the buyer defaults, you lose the cost of goods on half the order instead of the full amount.
Offer shorter terms: net 15 instead of net 30. Faster payment reduces the window for the buyer's financial situation to deteriorate.
Set a lower credit limit. Approve net 30 terms for orders up to $750, but require prepayment or deposit for orders above that. You extend terms without risking a large loss.
Revisit terms after two or three on-time payments. If the buyer pays consistently, increase the credit limit or remove the deposit requirement. If they pay late or require reminders, keep the safeguards in place or move them back to prepay.
The decision tree in this article is based on term structures GWO clients use in their portals, publicly available pricing for business credit reports from Dun & Bradstreet, Experian, and Equifax, and the prepay-then-graduate automation GWO builds into client accounts. The order size thresholds and margin examples are illustrative and will vary by product category and brand cash flow.
Set your credit check threshold based on your cost of goods and cash position. Orders below that threshold go prepay or deposit. Orders above it trigger a free lookup, then a paid report if the order size justifies the cost. Automate the prepay-then-graduate rule if your average order size is small and your buyer base is low risk. For larger orders or higher-risk channels, require a credit check before extending terms to any new buyer.
If you want a portal that enforces term rules automatically and tracks which buyers qualify for net terms, review the payment term options small brands use and decide which structure fits your margin and risk tolerance.
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