Trade credit can be a lifeline for smaller contractor businesses. It functions like a loan, allowing contractors and other service providers to purchase materials and supplies they need to complete their jobs. This means they can get the materials upfront and pay for them after the job is completed and they’ve been paid.For smaller businesses, trade credit provides purchasing power similar to larger companies. This capability allows them to bid on larger jobs by ensuring they have the cash flow to buy necessary materials. Consequently, trade credit offers better control over cash flow, enabling businesses to manage the ebb and flow of jobs more effectively.
Importance of Professional License Verification (PLV)
Professional license verification (PLV) helps lenders provide trade credit to businesses they can trust to honor the lending agreement. PLV is the process of confirming that professional licenses are in good standing with the authorizing body.
Why Trade Credit Providers Should Care About PLV
For trade credit providers, PLV is a crucial part of risk management. It gives providers the information they need to accurately assess whether to extend credit to a contractor. If trade credit is extended to unlicensed contractors, the risk increases significantly. For instance, in states like California and Alabama, unlicensed contractors have no legal rights to get paid. If the client withholds the money lent to the contractor, it could take a long time to recover those funds. It comes down to, "do you have the resources" to stay on top of contractor or a pro's professional license status and their on going - "good standing".
PLV ensures that the business is not only legitimate but also licensed to perform the work they are doing. Furthermore, PLV confirms that the license is in good standing, meaning it hasn’t expired or been revoked for any reason. This verification is essential to reducing risk and safeguarding the trade credit provider's interests.
Challenges of PLV for Trade Credit Providers
Complexity
The biggest challenge with PLV is that it’s a complex process, especially when done manually. Verifying licenses involves coordinating with licensing bureaus across the country and at multiple levels (city, county, and state). This complexity makes it harder to complete the process quickly. When your business approves credit in a specific timeframe, such as 24 hours, your verification process needs to match that timeframe.
Data Freshness
Manual PLV also suffers from a data freshness problem. Often, businesses download the data needed to verify professional licenses from third-party sources once or twice a year. This approach doesn’t reflect the dynamic nature of professional licenses, which can change if they expire or are revoked. Using outdated data means you might miss crucial changes in license status.
Onboarding
The final challenge occurs during onboarding. If the process is too complicated, busy contractors and trades workers aren’t likely to commit. Simplifying the onboarding process is essential to ensure widespread adoption and compliance.
Automation: The Key to a Successful PLV Program
Automation is critical to all successful PLV programs. It provides numerous benefits:
Automating PLV can significantly reduce the time required for verification. For example, automation can bring PLV down to as little as 90 seconds, compared to a manual process, which can take days.
Automated PLV systems ensure data is up-to-date and accurate by pulling the data directly from the source rather than relying on third-party databases that may be outdated.
A simplified onboarding process reduces friction and makes verification more attractive for vendors. Automation ensures that the process is straightforward and easy to follow.
An automated PLV program allows you to continuously monitor the status of a license, so you are immediately aware of any changes that might need to be addressed.
If you’re ready for an automated PLV process that enhances risk management and boosts compliance, let’s talk. Mesh can help you get a solution in place that improves speed and efficiency, reduces human error, and ensures you’re using the freshest data available.