Monitoring and understanding your own company’s credit score is crucial, but it\u2019s equally important to run a company credit check on any business you currently work with – or plan to work closely with in the future. This includes business partners, clients, and suppliers.<\/p>\n
But why is it so important? What financial information can you obtain about another company? And how do you run a company credit check? We\u2019ll explore these questions, leaving you better placed to make informed decisions and protect your business.<\/p>\n
The success of your business relies on smart decisions and a healthy cash flow. But it\u2019s not just your own decision-making skills and financial health that are relevant here. Every business you work with plays a part in your company\u2019s survival and success to some extent.<\/p>\n
If a supplier is at risk of going out of business, you may not be able to deliver goods and services. Similarly, if a client doesn\u2019t pay their bills, your company might struggle to pay its own bills. Moreover, if a business partner has an ambiguous history or undesirable reputation, their involvement could have a disastrous effect on your business.<\/p>\n
Running company credit checks will enable you to:<\/p>\n
Understanding the financial stability and payment history of other businesses can minimise the risk of late payments and unpaid invoices, help you to spot potentially unreliable or insolvent suppliers, avoid bad debt, and sustain revenues. All of these factors are key to maintaining a healthy cash flow.<\/p>\n
SMEs are particularly susceptible to business scams and fraud<\/u><\/a>. A company credit check will help you to determine whether a company is legitimate and alert you to dubious ownership details, questionable practices, or a history of unpaid debts.<\/p>\n Many factors influence your reputation, including who you do business with. Being associated with the wrong supplier, client, or partner can have a considerable impact on your brand image and success. Similarly, if another company\u2019s financial troubles directly impact your ability to provide goods and services or pay your bills, the knock-on effect will damage your own company\u2019s status.<\/p>\n To make smart decisions about the direction and future of your business, you need to have detailed and objective information about who you\u2019re working with. Can your suppliers meet your needs, or it is time to source new vendors? Will your clients pay on time? Do you need to make changes to your invoicing and payment terms, or are more drastic measures required?<\/p>\n By keeping tabs on competitors and business partners, you can gain valuable insight into the current situation within your industry. This can help you to spot weaknesses, potential risks, trends, and opportunities for growth<\/u><\/a> – ultimately, staying one step ahead at all times.<\/p>\n Regular monitoring of key businesses is also crucial. A new supplier or client may pass a business credit check when you first start working with them, but things can quickly change.<\/p>\n Ideally, you should check their business credit score at least once per year to monitor their financial position and take preventative measures if necessary.<\/p>\n A business credit score<\/a> is the measure of a company\u2019s creditworthiness. Based on past behaviour, the rating helps to show how a business manages its repayments and finances in general.<\/p>\n Unlike personal credit scores, which typically range from 0 to 999, business credit scores are measured on a scale of 0 to 100. The higher the rating, the more stable and reliable the business.<\/p>\n Credit reporting agencies, like Experian, Equifax, and Dun & Bradstreet, consider a range of factors when calculating a company\u2019s credit score, including:<\/p>\n An established company that\u2019s been in business for a while will have more credit and payment information available than a startup. This makes it easier to calculate a credit score. Moreover, given that most businesses fail within the first three years, older companies are statistically more secure.<\/p>\n Paying bills and invoices on time has a huge impact on credit scores. If a business consistently pays what it owes by the payment deadline, this demonstrates that it is a reliable borrower and manages its finances responsibly.<\/p>\n Newer companies will have very little (if any) credit history compared to more established firms, whose longer track record of credit and repayment history indicate how well they manage their finances.<\/p>\n A company\u2019s credit utilisation ratio<\/a> is the amount of credit it is currently using divided by the total amount of credit it has available to use. A low credit utilisation ratio means that a company is using less of its available credit, which demonstrates good financial management.<\/p>\n Certain industries pose more of a risk than others. Thus, the financial health of companies working in riskier industries can be unpredictable.<\/p>\n When you run a company credit check on a company, the credit score will be included in a business credit report. However, the score is just one part of the picture – you need to look at the entire report to fully understand the company’s financial health and level of risk.<\/p>\n Typically, a business credit report will include the following information:<\/p>\n This information provides valuable insight into how a business operates and manages its finances, allowing you to make educated decisions about who you work with and how much credit (if any) to extend to clients.<\/p>\n It is vitally important to analyse all of the information included in a credit report, rather than simply basing your decision on the credit score alone. By doing so, you will be able to spot trends and potential issues that could have a negative impact on your own business.<\/p>\n Common red flags to look out for include a gradual or rapid decrease in profitability, a history of late payments or unpaid debts, a high credit utilisation rate, and multiple finance applications in the recent past.<\/p>\n Unlike a personal credit check, which can only be carried out with permission from the individual, anyone can run a company credit check on any company they\u2019re interested in.<\/p>\n This means that it\u2019s easier than ever to do your due diligence, know who you\u2019re working with, make smart decisions, and protect the future of your business.<\/p>\n The best way to run a company credit check on a business is to order a business credit report from one of the UK\u2019s three major credit reference agencies – Experian<\/u><\/a>, Equifax<\/u><\/a>, and Dun & Bradstreet<\/u><\/a>.<\/p>\n Whilst they all issue scores on a scale of 0 to 100, there\u2019s no standard formula used to calculate credit scores. Each agency has its own distinct methods, criteria, and scoring systems, so results can vary ever so slightly depending on which one you use.<\/p>\n By and large, however, all three agencies look at the same common factors, like the age of the business, payment history, and credit utilisation.<\/p>\n Sometimes it\u2019s not possible to run a company credit check on a business. This may be the case if the business is new and doesn\u2019t have a substantial credit file yet – or perhaps you have a limited budget or are short on time.<\/p>\n Whatever the reason, there are other options available that can provide useful information about a company\u2019s creditworthiness and level of financial risk.<\/p>\n3. Protect your company\u2019s reputation<\/h4>\n
4. Make informed decisions<\/h4>\n
5. Maintain a competitive edge<\/h4>\n
Monitor regularly<\/h4>\n
What factors influence a company credit score?<\/h3>\n
1. Number of years in business<\/h4>\n
2. Payment history<\/h4>\n
3. Age of credit history<\/h4>\n
4. Credit utilisation rate\/ratio<\/h4>\n
5. Industry in which the company operates<\/h4>\n
What information is provided in a business credit report?<\/h3>\n
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What you should do with this information<\/h4>\n
How to run a credit check on a business<\/h3>\n
When a formal business credit check is not an option<\/h3>\n
View company details and annual accounts online<\/h4>\n