Business credit reports are more than just a score

Posted on by Cindy Yip

Estimated read time: 6 mins

How do you decide which customers and suppliers you want to work with? The quality of their products, their reputation from word of mouth, or the price they can pay you or offer to you. These factors and order of priority will vary for every business, but what tools do you use to support your decisions? You need to be confident that what they tell you is accurate or this could increase your business’ exposure to risk. This is especially so, if your business relies heavily on a few customers and suppliers. Managing your risk and being confident that you’re making the right decisions with in depth financial information on a company is the first steps in ensuring your business is on its way to success.

When making your next business decision, we want you to consider a factor you may not have considered before or that may not have seemed particularly important to you – a business’ current and past financial situation along with predictability of their future credit risks and failures. We’ve all heard of a credit score before and you’ve most likely checked your own personal credit score somewhere along the line. Whether this is getting finance for your first car, applying for a mortgage for your next house or even just curiosity into how healthy your credit looks. But do you know the importance of this when it comes to businesses?

Some people say the business world is like a battlefield; every day brings new challenges, risks and opportunities. Of course, we need to rise to the challenges, mitigate the risks and take hold of the opportunities, but how do you ensure all the decisions you make are informed and evidence based? Little do people know that a credit report can actually tell you more information than just a business’ credit score but includes an array of detail to help you make decisions with confidence.

Below are just a few of the items that can be in a business credit report and what they can tell you about a business’ situation.

Credit score – This is the first and possibly the only item people think a business credit report includes. A credit score can range from high to low risk and is calculated based on many different factors, with the calculation all varying for different credit reference agencies (CRA). Most scores will take into account the age of a business, how quickly they’ve been paying their suppliers, any adversities they may have against them, the stability of their industry and much more. It gives you a general picture of how financially reliable their company is, taking into account factors that you should be concerned with when deciding to work with anyone. It also gives you a history of the change in this score so you can look into why a score dropped or increased at a particular time.

Financials – All limited companies are required to file their annual accounts 9 months (at most) after the company’s financial year ends with the Companies House (1). This will be shown with their profit and loss and balance sheets so you can see their profits, losses, assets, liabilities and working capital and not just take their word for it. It’ll also show you their cash flow giving you an indication of their company’s liquid assets and their ability to settle debts, pay expenses and reinvest in their business. You wouldn’t want to work with a customer or supplier who seemingly has a negative or unreliable cash flow as this indicates they may be running into problems.

Adversaries – You can see any past adversaries they’ve had such as County Court Judgments and find out whether they’ve failed to pay money they owe.  Satisfied and unsatisfied adversaries should be viewable along with the value of each one. If a business has a string of adversaries, this could be indicative of their financial health and cash flow along with the general organisation of the company. It will depend on your CRA in terms of how far back you can see into their adversary history.

Ownership and Directors – You may be trading with a business but ultimately, it’s the people behind the business that you’ll be working with. You’ll be able to see the group structure, whether they have any parent companies and the number of shareholders. The most interesting part is finding out about all their directors and associated businesses. Any past appointments that they’ve registered with Companies House before will appear on their file and show whether they’re still associated with that business. You can then have a look into them to see whether they’re still being successfully run or whether something happened to them whilst the director was in appointment. It can give you an idea of their management style and their track record of the businesses they’ve ran.

So, hopefully you can now see how a credit report can tell you much more than just a credit score. It can tell you a vast amount of information to help you make more informed business decisions and minimise your business’ exposure to financial risk, in what is already a volatile and difficult economy. Experian Business Express’ UK Business credit reports can tell you all the above and much more. Get a free demo and see for yourself how we can help protect your business.


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