Can you explain how the creditworthiness of potential customer can be assessed?

Before banks extend credit, they verify the prospective borrower's credit history and ability to repay, among other things. That's not as common in the $2 trillion unsecured, or trade, credit market, says Alex Coté, vice president of marketing for Cortera, a credit-risk monitoring service in Boca Raton, Fla.

To keep an eye on customers and their ability to pay what they owe, below mentioned is adviced:

Require a credit application

Every business requesting credit should complete a credit application that includes basic information like address, contact information and tax ID number, as well as references from other businesses that have extended credit to them. It's unlikely a business will list a contact that will say something negative, but if the company has trouble coming up with three or four good references, it could be a red flag.

Be sure to check the applications, too, Coté says. Too many small companies collect the data and then fail to verify it, he says.

Check publicly available information

The company's social media streams, the news release section on its website and information available through simple search engine exploration can help you determine whether the company is having problems that may affect its ability to pay. Publicly traded companies also must regularly file fact-filled reports about the state of the business with the Securities and Exchange Commission. These are usually available on the company's website or through sec.gov, using the site's EDGAR service.

Use credit evaluation tools

Business credit evaluation tools provide different information at varying costs. Consumer credit giants Equifax and Experian also provide credit monitoring tools for small and midsize businesses.

Gathering information about customers' cash flow isn't just something you do at the outset of a relationship, watching out for problems that could affect your customers' ability to pay you can help you avoid getting burned.