Small businesses are being urged to check the financial status of business partners and suppliers before doing business with them.
The warning from 192.com comes following its survey which found that one in three SMEs were unaware of a business partner's debt, while a third said they had been lied to about the state of a company's finances.
Over one in five SMEs said they had found themselves caught in financially unsound business relationships after failing to study company credit reports.
It also revealed that 77 per cent of SMEs had not researched a partner's financial history by obtaining a business credit report. Such reports detail a businesses' financial health by outlining county court judgements - a legal notice of a company's failure to pay debt - which stay on the register for six years.
Dominic Blackburn of 192.com said: "We advise business to use a company credit report to find out whether a potential business partner can service its debts, pay its suppliers on time, and maintain stability at board level."
Outstanding charges against a company were cited as the most troubling aspect of a company credit report, followed by previous county court judgements and poor working capital.
Just under half of respondents also said that a company who had changed its name several times would also be a cause for concern while the unreliability of business suppliers had also been a problem for SMEs.
Key findings from the research found that:
- 32 per cent had not been told about the state of a company's finances.
- 22 had experienced a financially unstable business partnership.
- 70 per cent of businesses would be troubled by outstanding charges against a company.
- 65 per cent would be concerned by county court judgments.
- More than half would be put off by a company's poor working capital.
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