Credit and Finance
5 questions a suppliers’ credit report can answer
Posted on by Cindy Yip
Estimated read time: 6 mins
Choosing to work with a new supplier is like choosing your first bike; you want it to be stable, reliable and able to accompany you in your journey for the long run. You don’t want to worry about whether you’ll fall off the bike because the parts aren’t securely fitted together or whether the bike will easily break and you’ll be looking for a new replacement soon. This is very similar to finding a new supplier; you want to know that their business is healthy and able to accompany you in your business journey for a long time. There are already many worries when running a business without an additional one of whether you need to be sourcing a new supplier. Looking at a suppliers’ credit report beforehand could settle a lot of your concerns and answer any unanswered questions.
How quickly are they paying their suppliers?
The speed at which a supplier pays their own suppliers can be indicative of how reliable and financially sound they are. If they always seem to be paying their own suppliers on time, this could be evidence of how prompt they are in other aspects such as being able to deliver products and services to you on time. This is a positive sign that their cash flow and finances are in good order for them to be able to make timely payments as opposed to constant late payments.
You may not be able to find out the specific reason of late or timely payments without delving more into it but it helps to find out suppliers’ days beyond terms and get an understanding of their payment behaviour.
What do their finances look like – such as their profit and loss and balance sheets?
This isn’t something that a supplier will likely share when they decide to start a business relationship with you and probably not something you’d request to see either. However, won’t you want to see for yourself how well they’re doing financially? A business’ financials can tell you detail of their performance over the years and help you spot any red flags yourself before it’s too late. Rising debt-to-equity ratio could indicate they’re absorbing more debt than they can handle. On the other hand, growing profit figures signals efficiency or increased sales which will give you more confidence in going ahead with this relationship.
How risky is their business?
The main item a credit report will tell you is whether the business is risky based on their credit score. A credit score is calculated using lots of different factors to tell you whether they’re high or low risk and how able they are to meet its obligations at that particular moment in time. By looking at their adversaries which mainly consists of County Court Judgments, you can see how prompt they are in repaying monies they owe – these are judgments that other businesses have raised against them due to them not repaying payments on time.
Who are their directors and what businesses have they been associated with?
You may well be trading with another business but ultimately there are going to be people behind that business and these are the people you‘ll be making connections with and who’ll be making the crucial decisions. It helps to get an understanding of them and the businesses they’ve been associated with in the past and present. Many credit reports should be able to tell you their current, resigned and dissolved appointments. It’ll start to give you an understanding of the risk associated with the people you’ll be involved with; by seeing the businesses they’ve been associated with, you can delve into these in more depth and see how well they also did. Could this be a reflection of the business decisions that they may be making?
Is there any other information I can find out about them that they haven’t told me?
There is lots of information you can find out about a supplier on a credit report that they may not have told you or you may not have known you wanted to know. A full credit report of any company should have a library of all the original documents they filed with Companies House including but not limited to liquidation documents, change of name, director and mortgage documents. This could be interesting and prompt considerations you may not have done before. For example, if they’ve stayed in the same registered office for a long period on time along with healthy finances, this could be a sign of stability.
Doing a quick simple credit check and taking precautions when choosing or continuing to work with existing suppliers can help you spot risks in advance and it makes business sense to know who you’re really dealing with. Find out as much as you can and if anything appears suspicious to you then proceed with caution to mitigate the risks they impose on your business. On the other hand, if everything appears healthy then this is one less concern for you when running your business on a day to day basis. Even when you’ve decided to work with them, keep on monitoring them to ensure their standards don’t slip and you’re made aware of any changes in their situation immediately by being proactive.
Are you looking to minimise your business’ exposure to bad debt and make informed business decisions every day? Qualify your customers, suppliers or contractors with Experian UK Business Credit Reports. Speak to one of our agents today to claim your free trial.