Three Things To Know Before Running A Business Credit Check

A business credit report will give you a fair idea about how a company organizes its credit outflow. It enables you to determine if an enterprise can be trusted by the way it manages money. 

You can adequately gauge the financial health of a company with a business credit report. A good business credit score indicates that a company is a good candidate for receiving loans on favorable repayment terms. 

An exemplary business credit score proves their creditworthiness and implies that they can fulfill their financial obligations and obtain good financing to conduct their business for growth and expansion.

Before you engage financially with any company, you need to run a business credit check on them. Associating your business with potential partners who have a bad business credit score can have serious repercussions on your business credit, and it can direct the way other companies will perceive your business. 

A business credit report will enable you to provide credit to your potential business partner responsibly. It allows you to assess the likelihood of repaying the credit on time so that you can smoothly conduct your business. 

Moreover, it will give a better idea about how much credit should you lend for small business financing. Hence, with a business credit report, you can appropriately assess both credit risk and affordability before providing any credit so that you do not get into any financial difficulties. 

If you are wondering how to get business credit reports online, you can refer to various reputable e-companies that allow you to buy business credit reports to check up on your potential business partner.

Hence, as a business owner, you need to make informed business credit decisions. With the help of business credit reports of current and prospective business partners, you can adequately maintain your financial health and enable your cash flow to move smoothly. Here are few important things you should know about business credit reports.

Factors That Determine Business Credit Scores

A business credit score gives you crucial insight into a company’s financial health and reliability. The credit reporting agencies generate the report and calculate it using several factors. 

The details typically consist of public financial data and information that the company, its lenders, and other vendors supply to the credit reporting agency. The scoring model of each agency differs, and most of them combine the following factors like payment history, age of credit history, debt and debt usage, industry risk, and company size. 

A business credit report will help you know about business characteristics, older companies have better credit scores as compared to startups. A company that has sustained itself for a long time builds an adequate financial history. 

A business credit report will enable you to know about a company’s credit utilization ratio, that is, the amount of revolving credit they currently use divided by the total amount of revolving credit that is available. To have a good ratio, they need to have a credit spend under 30 to 35% of their credit limit. 

If they have a higher spend ratio, it indicates that they have a weak credit repayment schedule, and are extensively relying on external credit. You can gauge their credit history with a business credit report which generally includes the credit length, consistency and regularity of repayment history, current, and past loans, and also their outstanding debts.

Importance of a Business Credit Report

Before pairing up with new customers or suppliers and establish a partnership with another company, you can minimize and manage credit risk by accessing their business credit report. It will enable you to evaluate the likelihood of repaying what they borrow on time. 

The business credit report allows you to look into how they have managed their credit accounts in the past, and gauge their credit commitments. It allows you to predict better if they can manage the credit they are applying for. 

These reports will boost your credit-related decision-making process, and also assess how much business credit they can afford, and what risk you are taking by providing the given amount of credit. 

Business credit reports give you a better overview of the company’s information, subsidiaries, company finances, risk scores, and any liens or bankruptcies so that you can make a well-informed business credit decision.

Monitor Your Own Business Credit Profile Too

Besides monitoring the credit profile of your customers, partners, and suppliers, you should also monitor your business credit profit too. It will impact how other companies and financial institutions perceive your company and affect the decisions for conducting any business relationship with your business. 

For expanding your business, you should keep a tab on your potential partner as well as your credit score. You should try to keep it favorable and updated at all times to obtain good financing opportunities to conduct your business.

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Hence, you can rely on business credit profiles to access the necessary information you need to decide if you can extend credit to your prospective business partner, and gauge the credit risk and affordability.

How to Find the Best Business Credit Report

When you provide a service or sell a product to a customer, you want to be paid promptly. When you place an order with a vendor, you want to be assured they have enough financial stability to buy the raw materials they need to produce the goods you have purchased. 

When other companies have underlying financial problems, it can hurt your business and your cash flow. This is why it is important to know the financial health of companies you do business with.

It is also important to know how lenders and other companies view your financial health. Your credit history can make a difference when it comes to getting approval for a business loan, negotiating repayment terms, or getting credit from a vendor or supplier. 

All of this information is available in a business credit report. But how do you know which is the best business credit report for your business?

The Best Business Credit Report

The best business credit report is the one that provides you with the information you need to make good business decisions. Three major credit reporting agencies provide business credit reports:

1. Dun & Bradstreet
2. Experian
3. Equifax

Unlike consumer credit reports that use similar standards for measurement and reporting, each business credit report agency uses different information and metrics for reporting financial health.

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Dun & Bradstreet Business Credit Report

Dun & Bradstreet produces a score, which they call Paydex, that measures the payment history.

D&B gathers information from trade references. It bases Paydex scores solely on information from companies that report your payment history. Scores range from 0 to 100.

PAYDEX SCORE	PAYMENT TIMING
100	30 days before due
90-99	20 days before due
80-89	Pays by the due date
70-79	15 days past due
60-69	22 days past due
50-59	30 days past due
40-49	60 days past due
30-39	90 days past due
20-29	120 days past due
1-19	120+ days past due

Experian Business Credit Report

Experian gathers information from both suppliers and lenders. The credit reporting bureau also uses public records, such as liens, judgments, and bankruptcies. Experian examines payment history and available credit as part of its calculation. Scores range from 0 to 100, with a score above 80 considered to be excellent credit.

EXPERIAN INTELLISCORE	RISK
0-10	High Risk
11-25	Medium to High Risk
26-50	Medium Risk
51-75	Low to Medium Risk
76-100	Low Risk

Experian’s Intelliscore risk dashboard includes a Financial Stability Risk Rating along with a rating for repayment risk. The Financial Stability Risk rating is on a 1 to 5 scale. A low score lets lenders and suppliers know there is a low risk that a business will default or face bankruptcy during the next 12 months.

Equifax Business Credit Report

Equifax also gathers information from both suppliers and lenders. They also review public records such as liens, judgments, and bankruptcies. Equifax also evaluates business payment history and available credit.

EQUIFAX PAYMENT INDEX	PAYMENT TIMING
90-100	Pays bills by the due date
80-89	Some bills paid 1-30 days past due
60-79	Some bills paid 31-60 days past due
40-59	Some bills paid 61-90 days past due
20-39	Some bills paid 91-120 days past due
1-19	Some bills paid 120+ days past due.

Equifax produces a Credit Score risk report that ranges from 101 to 992. A high score indicates a low credit risk. Scores over 556 generally indicate a good business credit history. 

The Business Failure Score uses a scale between 1,000 and 1,710, and a score in the lower range indicates a company is more likely to go out of business or seek bankruptcy within the next 12 months.

Finding the Best Business Credit Report

If it sounds complicated, it can be because the agencies report things differently. To find the best business credit report, you need to compare the different reports and choose the one that provides the information you need while considering how the information will be used.

If you are considering applying for a business loan or need to negotiate credit terms with a vendor or supplier, you should pull a credit report on your business. 

If you are extending credit to a new customer or considering working with a new business partner, you should pull their business credit report to ensure you manage risk responsibly.

Whether you are checking on your business or evaluating another business, a business credit report will arm you with the information you need to make better business decisions and negotiate with confidence.

Accredit allows you to find the business credit report you need without signing up for any long-term subscriptions.