Established businesses always make sure they go through the proper procedures in order to continue doing good business and keep upstanding reputations.
Part of their proper procedures involve what is known as credit checks, or investigation done by prospective lenders to make sure that the company or person they are lending money to will be able to pay back the money they borrowed.
A credit check involves a detailed analysis that is done by a credit reporting bureau or agency. There are three top credit reporting bureaus: Experian, Trans Union, and Equifax.
A credit report, which is the result of credit checks, usually contains personal information like the borrower’s social security number, date of birth, current address and current employment. It will also include the borrower’s payment history and more importantly, if they are able to make timely payments, the lack of which can be cause for the lender to disapprove or refuse the loan.
If the credit is approved despite a less-than-stellar credit report, then two things can happen: the loan amount will be lowered than the original request or the interest rate for payback will be increased.
However, companies who want a more in-depth investigation and information will require additional information like adverse and default information on all the borrowing company’s directors or partners. As well as past credit inquiries on the borrowing company’s directors or partners.
They will also want to check for any insolvency or bankruptcy information included if any.
5 Super Easy Ways to Perform A Company Credit Check Online
1. Credit Reporting Agency
Big businesses often hire reputable credit reporting bureaus or agencies because they want to be sure that the people they are dealing with are trustworthy and creditworthy.
They do this to avoid going into debt and having to spend extra because they would need to hire collection agencies to collect the outstanding amounts. Often they prefer to do it themselves but as more and more debts are accrued, it becomes necessary to hire collection agencies to assist them.
To start doing a credit check, you will need to register your company with any of the credit reporting bureaus or agencies. You can do so by creating an online account on any of their websites and then selecting the level of membership you feel will suit your company’s requirements.
Once you’ve registered, confirmed and paid for your membership, you may start requesting for credit checks right away.
2. Credit Report Online
To request for a credit report online, you will need to fill up the credit check request form with pertinent details. You must also indicate the amount of information you need but this will depend on what credit reporting bureau you registered with.
Most companies consider the borrowers’ credit score the most important detail in the credit report which is why this is the first thing that they will try to locate. A solvent business’ credit score will be above 70 and a good indication that they pay their bills on time.
Companies with credit scores below 30, however, will most likely be companies that are ready to file for bankruptcy and therefore, huge risks. However, because credit reports can be easily accessed online, they can also be requested by practically anybody.
But for businesses, investors are the most qualified persons to request credit reports because they need to know if a company is worth investing money in. To be able to request a credit report, you need to contact any of the credit bureaus and provide the company’s tax identification number, business name and address.
Legitimate businesses will also be registered with any of the top three credit bureaus. Because if not, you will not be able to obtain any report.
3. Credit Score Range
4. Payment Term and Visibility
With the current economic climate demanding tighter payment terms and more visibility over your clients’ ability to pay, company credit checks have become an important part of the day to day business.
A simple quick credit check online can save hours of chasing payments and ensure you have a good idea as to the state of your clients’ finances.
Debt collection can be costly and time-consuming. So by selecting the customers, you deal with based on their ability to pay you can reduce your exposure and help ease your cash flow in these tough economic times.
It is also important to get regular credit checks on your largest clients. Time can change companies circumstances quickly, especially in today’s fragile economy. By ordering regular checks you can keep on top of customers that get into difficulty before it filters through to your invoices.
5. Credit Rating
The ratings give you an indication of the creditworthiness of a business based on a number of factors, and some complex number crunching behind the scenes.
They are a guide you can use when looking at a company report and trying to agree on a recommended limit with your client.
Company credit ratings are based on the last available information files at Companies House. They are not like consumer credit reports where financial institutions report your information back on a monthly basis. So most ratings are unable to take into account missed payments etc.
The information from the company accounts, historical accounting information and any county court judgments help a rating be established.
With company reports, you can also see the full details of any directors in the business, and any other companies they are involved in. This can be useful when looking at new startups or if a company changes its name.
Overall the credit rating takes into account many different elements, mainly taken from the accounts the company files, and should be used as a guide to come to your own conclusions about your client.
A simple fast online check is all it takes to help provide peace of mind and get the information you need to make an informed decision on your client. It can also be useful to check your own company credit report, especially if applying for new business finance or credit lines with suppliers.
Identifying your weak points means you can instantly start working to improve your company credit rating.
Adrian Lawrence is the CEO of Reporting Accounts a leading provider of UK corporate information, A Chartered Accountant with more than 25 years of business and entrepreneurship in the UK.
