Thursday, 17 November 2016 10:00

How to Read a Company Credit Report

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When it comes to managing your finances in business, knowledge really is power. And this is never more the case than when you are signing agreements to sell your products and services.

As a creditor, the main thing you want to know is whether you are going to be paid fairly and on time. The last thing any business wants to do is get into an arrangement and end up not getting paid.

Credit reports allow you to check the credit history of any organisation you are planning to do business with. They are widely available online, relatively cheap, and can help you to avoid risks in the decisions you make. And while credit reports can raise red flags before you strike a deal with a potential non-payer, they also give you insight into your own credit history - and therefore how suppliers and lenders view doing business with you.

So what information is contained in a business credit report, and how can you use one to decide who is worth shaking hands with and who to avoid?

Company Information

An important first step before signing up to a financial arrangement with another business is to verify they are who they say they are - and to check there is no association with other businesses with a poor credit history.

Credit reports verify key corporate information such as registered names, addresses and contact details. They also include how long the business has been operating, and also provide so-called ‘matched’ data, such as alternative operating names and addresses. This provides a safeguard against businesses with a poor credit history changing their name.

The report will also list details of holding and subsidiary companies, including linkages to any overseas operations, along with details of current and previous directors. This latter information is important to flag up any instances where company directors have filed for bankruptcy.

Credit Report

Credit Score

A credit score or rating provides a key at-a-glance summary of a business’ financial and credit history. Typically, a credit score will rate a company out of 100 on the likelihood of it paying debts quickly and fairly, with 100 being a ‘perfect’ debtor. The score will usually be displayed graphically, often using a red, amber, green colour coding system.

Additional information provided may include:

Limiting Factors: Details from the company’s credit history which have lowered the score. These may serious adverse information such as details of CCJs and writs against the company.
Risk summary: A short statement summarising the anticipated risk of non-payment in words.
Risk comparison: Placing the company’s credit score in the context of default risks across that industry.

No credit score may be given in instances where there has been a bankruptcy associated with the business, or where there is insufficient information available.

Credit Limits

A credit report will usually recommend a maximum credit limit for a business, based on overall liabilities and financial performance. This gives potential creditors an idea of a ‘safe’ level of business a partner should be able to pay for, and what would be over stretching them.

Accounts

Credit reports sometimes include details of business accounts going back up to five years. This again gives a picture of the financial health of a business, which is useful for weighing up the risks of supplying them.

Find Out More

If you would like to learn more about credit reports or discuss credit control for small businesses in general, please contact us.

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