Providing credit to customers and business partners can be a great way to attract new business and build trust but it can also be risky if proper business credit checks are not carried out beforehand. Whereas dealing with doubtful debt write-offs overdue payments and invoice disputes is Time-consuming and expensive Most businesses rely on credit files to provide the information needed to decide whether to grant credit.

Monitoring the credit activity of customer partners and suppliers can also alert you to other potential risks that may affect your business. For example knowing in advance that a partner is in financial distress or an important supplier is about to go bankrupt enables you to seek remedies Protect yourself for example by hiring another partner or finding an alternative supplier.

Monitor your own business credit profile

Monitoring your own business credit profile is just as important as monitoring the credit profile of your client partners and suppliers. Your business credit score will influence the decisions of other companies and agencies regarding their business relationship with your business. E.g:

  • Banks or other financial institutions are clearly reluctant to provide financing to businesses with subpar credit scores. If financing is available they may ask for higher than normal rates. Likewise potential investors are unlikely to provide equity financing to credit firms distressed.
  • The provider will check your credit score before offering you credit and may lower or lower the level of credit awarded depending on the outcome.
  • Customers (especially major customers) may use your credit rating as a barometer of the long-term health of your business especially if you provide products/services that require a warranty and/or a high level of after-sales customer support .
  • Your insurance premiums may be affected by a low credit score.
  • If you want to expand your business you need a good credit report to attract investors.
  • When it comes time to sell your business a low credit score can affect the value of your business and the time it takes you to sell your business.

Information Included in a Business Credit File

In addition to basic information such as company address parent company subsidiaries branches key personnel etc. a business’s credit file contains detailed information about the following business accounts:

  • Banks and other financial institutions
  • Utilities
  • Credit cards
  • Suppliers
  • Other creditors

Details include:

  • When the accounts were opened
  • Payment history, terms
  • Outstanding balances
  • Past due accounts

The credit file also includes public domain information obtained from federal state/province/city records; includes adverse information such as:

  • Bankruptcies
  • Tax liens
  • Lawsuits
  • Court judgments

Most credit file providers typically have a credit score between 1 and 100 with higher values ​​indicating lower risk. Some also include financial stability ratings which indicate whether a business is likely to experience financial distress (or even bankruptcy) in the near term future. E.g:

  • The Equifax Credit Risk Score predicts the likelihood that a business will experience a 90-day significant delinquency or write-off over the next 12 months. Scores range from 101 to 992 with lower scores indicating higher risk.
  • The Equifax Business Failure Score predicts the likelihood that a business will fail due to formal or informal bankruptcy within the next 12 months. Scores range from 1000 – 1610 with lower scores indicating higher risk.

Obtaining a Business Credit Report

There are three main business credit reporting bureaus. While there are many other credit bureaus out there these are three you should focus on. Each offers affordable credit reporting options for small businesses (unlike individual consumer businesses each does not have a free credit report year):

  • Dun & Bradstreet is the largest business credit reporting agency with over 70 million business credit lists. D&B offers a range of credit reporting options. For example a business report costs $61 while the Credit Reporter Plus option ($799) offers five reports and includes additional Features such as 12-month continuous credit monitoring.
  • Equifax Small Business Enterprise conducts credit assessments on more than 22 million small businesses and corporations. Prices range from $99.99 for a single report to $399.95 for a multi-pack that includes five reports at any time over a 12-month period.
  • Experian SmartBusinessReports provides access to the credit reports of over 27 million US businesses. Experian’s low-cost products are ideal for small business professionals – offerings range from $49.95 for a single report to $199 per month for subscription plans that allow up to 30 reports Every month and includes ongoing credit monitoring via email alerts.

Each credit bureau has its own scoring model and uses different sources of information.

Once you get your business credit report from one of these credit reporting agencies you must double-check it to make sure all the information is correct and up-to-date and there is no fraudulent activity. If your business has any bugs or problems Be sure to contact the credit bureau immediately to sort out the report.

Handling Customer Credit Refusals

If the customer’s credit check is negative you should send the customer a politely worded note informing them that you cannot provide credit. E.g:

We regret to inform you that due to economic conditions and the uncertainty inherent in our business we are currently unable to approve your request for credit. We will notify you when our credit policy changes. We sincerely hope that this will not affect our business relationship.

The note should thank the customer and offer alternatives such as cash payment.