You’ll likely be familiar with or have heard of a personal soft or hard credit check, but did you know that companies have one too? A company credit check is an important tool for business owners. By understanding what this financial tool is and how to use it, you can make informed decisions about who to do business with and how to protect your own business’s creditworthiness.
In this post, we talk you through some of the main things you need to know about company credit checks, in order to help you make the right financial decisions for your business.
Understanding what company credit checks are
A company credit check is a report that includes information about a company’s creditworthiness – i.e. how safe it is to lend them money. It will contain important details such as the company’s payment history, outstanding debts, and any public record information about the company.
This information can be invaluable for business owners who want to make sure they are doing business with reputable companies, and who want to protect themselves from potentially being stuck with the cost if they don’t get paid or receive their order. Meanwhile, for banks and other business owners, this information can be used to make decisions about whether or not to do work with a particular company.
Why is a company credit check important?
A company credit check is an important tool for assessing the financial health of a business. This type of check can provide insights into a company’s ability to pay its bills, manage its debt, and maintain a good credit rating. This might be valuable information, especially if you’re looking to enter into a long-term partnership with a business.
Additionally, a company credit check can help to identify any red flags that may indicate financial difficulties. For example, a sudden decrease in the number of trade lines or an increase in delinquent accounts could be signs that a company is struggling to make ends meet. By conducting a company credit check, businesses can get a clear picture of their financial status and make informed decisions about whether or not to extend credit.
How do you get a company credit check?
There are a few different ways to obtain a company credit check. The most common way is to request a report from a credit reporting agency. There are also some websites that offer free company credit checks. However, these reports may not be as comprehensive as those from a paid service.
Once you have obtained a company credit check, you will want to review the information carefully. Pay special attention to the company’s payment history and outstanding debts. If you see any red flags, you may want to reconsider doing business with the company, or at least raise it with them and investigate further. However, if the report looks good, you can feel confident moving forward with the transaction.
Maintaining your company’s score
As well as learning about how to check the credit score of companies you’ll potentially be working with, it’s also important to know how to positively maintain your own business credit
score, so that you too appear an attractive potential partner to other businesses. Firstly, make sure that you’re on time with any existing payments – and if there’s an exception where you’re going to be late, talk to your lender first. Being late with payments can leave you with a financial penalty and a long-term reputation for being high-risk for lending.
Just like a personal credit score, you should avoid making multiple applications for credit in a short period of time, as it demonstrates a more desperate need for funds which can be concerning. Taking out multiple loans may also make it more difficult for you to make the repayments, which can be another red flag.
Does personal credit history affect business credit scores?
One of the most common questions small business owners have is whether their personal credit history will affect their business credit scores. The answer is that it can, but it doesn’t have to.
Business credit scores are primarily based on the payment history of the business, not the personal credit history of the owner. However, if the business is a sole proprietorship or partnership, the personal credit history of the owner may be taken into account. So personal finance is quite important (I have an article here that outlines some tips for that)! In addition, some lenders may require a personal guarantee when extending credit to a small business, which means that the owner’s personal credit history will be relevant. Ultimately, while personal credit history can affect business credit scores, it is not necessarily a determining factor.
A company credit check is an important tool for business owners. By understanding what a company credit check is and how to use it, you can make informed decisions about who to do business with and how to protect your own business’s creditworthiness. Reviewing company’s creditworthiness before doing business with them can save you time and money in the long run.