The recent financial troubles at CIT Group have ignited serious fears among hundreds of thousands of small businesses that have financial relationships with the company.

With the small-business economy already suffering due to limited access to credit and capital, insufficient bank lending, inadequate government stimulus and a decrease in net revenue, the extinction of the nation’s largest credit-protection provider would have created another major economic setback.

While the CIT situation seems to have at least temporarily stabilized, what can SMBs do in the meantime to better protect themselves?

One suggestion is to develop an independent credit-scoring model.  In today’s economic environment, it’s simply insufficient to ask a potential customer for a credit application up front, check a few references and stick a copy of its financials into the filing cabinet. Whether a business is selling to a small or large company, it’s important to stay on top of the creditworthiness of every client, vendor or customer.

Implementing a credit-scoring model offers three primary benefits for small businesses. First, in combination with reviewing customer financial statements, credit scores inform sellers as to the creditworthiness of their customers.  Second, small businesses can set their approval rates based on the credit score of their prospects and their tolerance for risk.  Lastly, credit-scoring models enable a small business to continuously monitor the creditworthiness of its customers.

For more details about how it works, check out John Hayes’ byline on thestreet.com.

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