6 Reasons to credit check another company

UK small business owners often keep a close eye on their own company’s credit score, checking another company’s credit score is just as important. Whether you’re dealing with a new or existing customer, supplier, or business partner, running a company credit check can save you from costly surprises. In this article, we’ll explore 6 key reasons why proactively reviewing the business credit report of another company can protect and benefit your business.

1. Protect your cash flow and avoid bad debt

Cash flow is the lifeblood of any small business. If a customer delays or defaults on payment, it can leave your company struggling to cover its own bills. Running a credit check on prospective customers allows you to spot signs of financial trouble – such as poor credit ratings or past defaults – before you extend payment terms. This helps you avoid bad debt and plan ahead.

Late payments alone cost UK SMEs an average of £22,000 per year and contribute to around 50,000 business closures annually (gov.uk)). Almost 52% of small firms experience late payments each quarter, a problem that severely hinders cash flow. A simple company credit check can help you avoid the bad debt trap and protect your business from becoming another statistic.

2. Avoid untrustworthy or fraudulent businesses

Running a credit check on a potential client, supplier, or partner helps verify their legitimacy and highlight red flags, such as suspicious ownership details, unpaid debts, or directors linked to failed ventures. A company’s business credit report typically includes details like ownership, outstanding debts, and legal filings, giving you a clear view of their financial track record. A simple check can even confirm the business exists at Companies House, reducing the risk of dealing with shell companies or imposters.

The stakes are high. Research from Visa (2024) revealed that 41% of UK small businesses were victims of fraud in the last year, with an average loss of £3,808 per affected business. The most common scams included invoice fraud, phishing, and bank account hacks. And it isn’t just the finances that suffer: 29% of business owners said fraud knocked their confidence, while one in five reported a negative impact on their mental health (Visa, 2024).

By running a company credit check, you reduce your exposure to these risks. More importantly, you gain peace of mind. Knowing your customers, suppliers, and partners are financially sound means you can spend less time worrying about who you can trust, and more time focusing on what really matters, building your products, serving your clients, and growing your business.

3. Safeguard your business’s reputation

Research shows that a strong corporate reputation is a predictor of financial performance, making it a vital business asset rather than a “nice-to-have.” Reputation influences everything from investor confidence to pricing power and customer trust. Protecting your reputation means working only with reliable, financially sound associates, and a credit check is an essential tool in that vetting process. The partners, suppliers, and clients you align with directly reflect on your brand. If you’re associated with a company facing serious financial issues, unethical practices, or problematic directors, your reputation can suffer by association. A credit report can surface critical warning signs such as recent insolvency filings, CCJs, or legal disputes that might not be visible otherwise, helping you avoid relationships that could undermine your business credibility.

A credit check isn’t just about protecting your receivables, it’s about protecting what you’ve built. It enables you to choose partners whose integrity and stability strengthen your reputation, rather than threaten it.

4. Set appropriate credit terms and limits

Performing a company credit check on customers and partners isn’t just about deciding if you will work with them, but also how. The results of a credit check can guide you in setting appropriate payment terms, credit limits, or contract conditions that reflect the right level of risk. For example, if a prospective client’s credit report shows a strong score and prompt payment history, you might feel comfortable offering 30 or 60 days payment terms, or even extending a higher credit limit. On the other hand, if the company’s score is low or their report reveals late payments and high debts, you may require upfront payments, shorter terms (like payment on delivery), or smaller order quantities until a history is built. In some cases, you might decide to add safeguards, such as trade credit insurance, for extra protection.

With your Capitalise.com account, you get suggested limits on the companies you credit check. You also get notified when a limit changes so you can take any appropriate action early.

5. Ensure supply chain stability and business continuity

Most businesses rely on key suppliers and service providers to deliver their own products or services. But if one of those suppliers suddenly goes bust or can’t meet their obligations due to financial distress, the disruption can ripple straight through to your operations.

Running credit checks on suppliers and partners helps you monitor their financial health and safeguard business continuity. A poor credit rating or new red flags ( such as rising debts or a County Court Judgment (CCJ) ) may indicate a supplier is under pressure. Spotting these early gives you time to find backup vendors, negotiate contingency plans, or adjust your strategy before a problem escalates.

This isn’t a theoretical risk. Recent research found that 54% of UK SMEs saw at least one supplier cease trading in the past six months, while nearly half reported customers becoming insolvent, directly hitting revenues and cash flow. In a fragile supply chain, even one failure can put your business at risk.

By routinely reviewing the credit reports of your critical partners, you can identify warning signs early and take action to keep your operations running smoothly.

6. Gain a competitive edge with industry insights

Regularly checking the credit reports of business partners, and even competitors, can give you valuable insights beyond immediate risk management. This practice is a form of competitive intelligence, helping you identify weaknesses, anticipate potential risks, and spot industry trends before they fully emerge, and ultimately stay one step ahead of the competition.

By monitoring changes in credit scores, legal filings, or financial stability, you gain a clearer picture of the landscape you operate in. This can also highlight opportunities to grow, diversify, or win business where competitors may be struggling.

Prioritise proactive credit governance

Proactively checking another company’s credit score is a smart habit that UK small business owners can build into everyday decision-making. From protecting cash flow and reputation to safeguarding your supply chain and strengthening negotiations, the benefits of running a business credit report on customers, suppliers, or partners are clear.

It’s far easier to prevent a problem than to fix one after the fact, and a quick credit check today can help you avoid costly disputes or damaging surprises tomorrow.