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How to Use Business Credit Reports For More Informed Decisions

How to Use Business Credit Reports For More Informed Decisions

When it comes to making decisions, how do you know that you’re making the right choice? While some people make decisions based on intuition and instinct others prefer a less risky approach. In this blog, we share how business credit reports can be your friend in making those tough calls.

What is a Business Credit Report?

A business credit report is like an individual’s credit report but rather than provide you with an individual’s financial information it will only cover a business’ financial information. Business credit reports provide you with an overview of a company’s financial standing, the company’s structure, and a business credit score that will determine a business’ credit worth.

Your business credit report says a lot about your business. Often lenders, suppliers, and other businesses will check a credit report and use the information it contains to decide whether to do business and issue you credit. There are several places you can access company credit reports including Experian, Equifax, and more.

What Information Do You Get in a Company Credit Report?

A company credit report provides you with:

Business credit score

A business credit score is a number that’s given to determine the creditworthiness of a business. It should show you at a glance how much of a risk they are deemed to be if you decide to grant them credit.

Different credit reference agencies use slightly different criteria and scales to give a credit score, but if a company is deemed a risk by one credit reference agency this will likely be the same across the board, although the actual scores may differ.

A detailed credit report will show what events have resulted in the business credit score given.

Payment behaviour

A good business credit report will give you insight to a business’ previous payment behaviour.

Being able to see if they have a history of missed payments will shape your decision on whether to grant them credit, and if you do, what credit limit would be appropriate to mitigate risk.

How long it takes the company to settle payments

Being aware of any previous missed payments is important but it is also important to have an understanding of how long it typically takes a business to settle payments. This way you can set manageable payment terms and be able to plan ahead anticipating when you can expect a business to pay you based on their track record.

Financials and directors

Key financials that have been filed such as a capital & reserves, cash flow statement, profit & loss statement as well as shareholder funds and turnover.

You may also have the names and titles of the directors of the company.

Court history (if any)

A business that has been to court and has county court judgements (CCJs) are a major red flag and you’ll be alerted to these instances in a business credit report.

General business information like address and telephone number

General contact details and the location of the business will also be included in the credit report.

Recommended credit limit

Calculated based on the factors that make up a credit score, you’ll also see a recommended credit limit that suggests how much the company in question should be able to pay back, whilst also not leaving you too exposed to credit risk.

How can a business credit report shape future decisions?

When it comes to using business credit reports to make decisions the most common way it is used is to help determine whether to grant credit to a business. However, as we have looked at, business credit reports contain a wealth of information that can be utilized to help support other decisions too.

Your own company credit score will be an indicator of whether the business is managing its finances well. This credit score can also be an indicator of who you do business with and can often determine your credit options. For example, if you have a poor credit score it is likely that businesses will not be able to provide you with as much credit than if you had a great credit score. As a result, this can sway your businesses decisions and whether your business will need to change its credit management approach.

Ultimately a business credit report will help you to decide if you are going into business with a trustworthy payer. Company credit scores will easily help you to distinguish between good payers, ok payers, and extremely risky payers. As a result, this will influence how much credit you give.

For example, you would be more comfortable giving a business with a good credit score the full amount they request. However, you might grant an ok payer less credit than what they initially request and monitor their payment behaviour to see how they get on with their repayments. Finally, it’s likely you’ll want to steer clear of risky payers wherever possible and, when you do need to do business with them, you might review their repayment terms and keep a very close eye on their repayment behaviour.

Credit reports can help you make smarter business decisions and avoid doing business with risky customers. While credit reports can help you avoid the risk of poor payment behaviour and late paying customers, they unfortunately don’t mitigate the risk altogether.

If your business is struggling with a late paying customer reach out to our expert team here at Darcey Quigley. Professionality and confidentiality are at the heart of what we do so you can walk through your situation with us knowing that we’ll give you best solution to get results.

Call us free on 01698 821 468 or schedule a call with our credit management consultants at a time that suits you.

Learn more about mitigating credit risk and making better informed business decisions with our complete guide to credit control.

Morgan Ramage
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