What is creditworthiness and how do you assess it before extending payment terms?

Assessing creditworthiness before extending Net 30 or Net 60 terms is the single most effective intervention in the AR process — because it prevents bad debt from entering the system rather than chasing it after the fact. A customer who fails a basic credit check today is a write-off risk six months from now.

For B2B transactions, creditworthiness assessment typically combines: a D&B PAYDEX score (business payment history), trade references from suppliers, public records (liens, judgments, bankruptcies), financial statements if available, and in some cases a personal guarantee from the business owner.

Not every customer needs a full credit review. A practical rule: require upfront payment or a deposit for any new customer on an order over your average bad-debt write-off. Run a formal credit check before extending terms to any account where a default would materially affect your cash flow. Once a customer has two or three clean payment cycles, their track record becomes more reliable than any external score.