Why is it important to perform credit checks on new customers?

Performing credit checks on new customers is crucial because it helps assess their ability to pay, which is integral to managing credit risk. By evaluating a customer’s credit history, outstanding debts, and payment behaviors, businesses can make informed decisions about extending credit. This process not only helps mitigate the risk of future bad debts but also protects the business’s financial health. Understanding whether a potential customer is likely to pay on time allows organizations to set appropriate credit limits and terms, fostering a healthier cash flow and reducing the likelihood of financial losses.

The other choices do not directly relate to the primary concern of managing credit risk or ensuring customer reliability in payments. Establishing marketing preferences or predicting buying trends, while potentially useful for other aspects of business strategy, do not have the same immediate financial implications as assessing creditworthiness. Additionally, determining a customer's social media influence does not provide insights into their ability or likelihood to fulfill payment obligations.