Read this guide to understand:
✅ What a company credit check means
✅ How to credit check a company
✅ Why credit checks are important
Checking your own business credit score is an obvious step for many businesses. It can open doors to affordable finance, better terms, or winning new business. But did you know that the credit scores of other companies can also affect you and that you can check them before they impact your business?
Credit checking the companies you do business with can help you reduce these risks and protect your bottom line. Think of late payments for instance: they are unfortunately too common, and when delays occur within your supply chain, it can have a significant impact on your cash flow and your credit terms.
In this guide, we run you through how to credit check a company, so you are best equipped to assess the risk other companies may pose to your business.
Credit checks provide valuable insights into a company's financial health. You’ll be able to see their business credit score, which indicates the level of risk associated with working with them. You can also determine if they have a history of paying on time and view their suggested credit limit, which is the maximum amount you should consider extending. When onboarding a new customer, this information can help you decide whether to extend credit and, if so, by how much.
You can also identify red flags on a company such as outstanding debts, late payments, or legal notices, all of which may indicate financial instability. By identifying these risks, it allows you to take steps to protect your business. For example, if you spot a supplier in difficulty, you could consider diversifying your suppliers to spread the risk of a sudden loss of critical goods and services. If a customer has these red flags, you can take steps to protect your business, such as setting stricter payment terms, requesting upfront payments, or even avoiding high-risk businesses entirely.
When you credit check a company, you view a report of information that a credit bureau has gathered: a business credit report. There are three main credit bureaus in the UK: Experian, Dunn & Bradstreet and Equifax. These credit bureaus collect data from various sources, such as Companies House, public records, financial statements and payment trends as reported from other companies and financial institutions - like banks.
All of the information on the business credit report should give you an in depth insight into how financially stable a business is.
You can easily check the Experian credit profiles of other companies using a Capitalise for Business account. Simply sign up for free to view the basic risks of up to 20 companies. If you want to access more in-depth information, you can subscribe to a paid plan which allows you to see the full business credit profiles of up to 100 companies.
When reviewing a company's credit profile, look out for the following red flags that may indicate financial instability or unreliability:
Frequent late payments or default
Consistently missing payment deadlines or defaulting on obligations can be a clear sign of financial distress.
High levels of debt
Excessive debt relative to income or assets can indicate a business is not financially stable. They may struggle to keep up with their obligations to you.
Legal notices against the company
Outstanding legal notices, such as a County Court Judgment (CCJ), suggest unresolved disputes and may indicate trouble with payments.
When you check a company with Capitalise, their credit report will show the following:
Full business credit score
This is made of the company’s numerical and letter score, summarising the company's overall creditworthiness. The business credit report will tell you if the score indicates a high or low risk and whether extending credit is a good idea.
Credit limit
You can view a company’s suggested credit limit. This is the recommended maximum amount that you should extend to a business. You’ll also be able to see whether this limit has increased or decreased over time.
Payment performance
This section provides details of a company’s payment history, including how many days late they have paid in the past, and whether their payment habits are improving or worsening.
Legal notices
Information on any legal notices registered against a company are displayed here You can see the registration date and whether they are resolved.
Credit factors
Positive, negative and neutral factors that are impacting the company's credit score will be shown.
Director details
Information about a company's director(s), including their name and date of appointment.
Companies with a strong credit score are generally more reliable and less likely to disrupt your cash flow. You can feel confident in extending favorable credit terms, and you might even consider offering them a higher credit limit. Their good credit history suggests they are likely to pay on time, reducing the risk to your business.
If you find that a company has a poor credit score, you might consider avoiding working with them to reduce risk. However, this isn't always practical, especially if they are a large client. If you choose to continue working with customers who have low credit scores, here are some ways to protect your business:
Ask for cash upfront
Requesting to be paid before delivering goods or services will reduce the risk of late or non-payment.
Negotiate stricter payment terms
Requesting shorter payment periods, or reducing the amount of credit you offer can help to mitigate the risk.
Monitor their credit profile closely
Regularly reviewing the company's credit profile means that you can respond quickly to any emerging risks.
All UK limited companies have a credit score. However, if the company is a sole trader, they won’t have a business credit score. In this case, you may want to check their personal credit score, get references from previous business partners, or research their reputation online to help you make an informed decision.
Credit checking the companies you work with is an essential step in protecting your business. By reviewing their financial health, you can spot potential risks, like late payments or financial instability and take steps to safeguard your cash flow.
Checking company credit scores plays a critical part of an effective credit control process, in ensuring you're paid on time, reducing credit risks, and maintaining a healthy cash flow. Get started today with 20 free company credit checks.
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