Credit Management Credit Reports CreditorWatch
4 mins read

What is a business credit file?

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The financial reputation of a business is one of the most fundamental indicators of its reliability to meet payment obligations, and this is showcased in a business credit file. Before you look to engage with a new customer, or a business partnership, it’s crucial that you do your due diligence and perform a credit check.

Poor payment behaviour from other businesses can be debilitating for any company, whether they be large or small. However, you don’t have to navigate in the dark anymore, as this behaviour is typically recorded within a business credit file. Performing a credit check on a business’s credit file ahead of time could save you on time otherwise wasted chasing up unpaid invoices, and money from late payments inhibiting your cash flow.

A credit file is a detailed credit history record for a specific business, used by credit reporting bureaus such as CreditorWatch, to determine its business credit score. Just as you have your own personal credit score and credit history, so too does a business. A business credit score is a significant indicator of a business’s financial health, and creditworthiness, and plays a role in determining if a business should be approved for credit products, such as a loan, or if they are reliable as a partner or customer.

Business credit files contain essential information relating to a business’s history of repayments, debts, and any adverse events. This includes:

  • Default risk – from A1 to F
  • Number of credit enquiries
  • Defaults registered against the company
  • ATO tax defaults
  • Court actions
  • Cross directorship information
  • ASIC notices published against the business
  • Other important adverse data

Before you engage with any new potential customer, it’s highly recommended that you consider running a business credit check for greater peace of mind.

Why run a credit check on your customers?

Performing a credit check on new and existing customers can be significantly beneficial for your business, as it allows you to better identify and manage risk. There are several reasons that a business may want to consider running a credit check to assess another business’s credit report information, including:

Maintaining consistent cash flow

Cash flow is crucial for small businesses, particularly when the bulk of revenue comes from specific key customers. A credit check will illustrate the likelihood that a business has a pattern of poor payment behaviour, which may then be repeated with you. Should you fail to run a credit check on your customers, you run the risk of engaging with a business that frequently struggles to pay its invoices.

Unpaid invoices have the immediate, adverse impact of slowing your cash flow, putting downward pressure on operations, preventing business growth and your ability to secure future investments. By doing your due diligence and running a company credit report ahead of time, you can help keep cash flow smooth.

 

Risk assessment

As part of a business’s risk assessment process, performing a business credit check is crucial. Not only could poor payment behaviour impact cash flow, but for smaller businesses, it just takes one or two high-volume customers defaulting on payments to force insolvency. In fact, CreditorWatch research shows that start-ups are most at risk of bankruptcy or liquidation from years two through four.

Business owners and directors want to see their company thrive, not simply survive, and performing a credit check is a fundamental way to reduce this risk. In this way, business credit reporting can be a great risk assessment tool in your arsenal.

Stronger business partnerships

When considering upscaling your business, or future investment opportunities, you may seek new business partnerships to help achieve these goals. However, without knowing the credit score of a business, or their credit history, it can be hard to vet whether a potential partner has bad debts and poor payment behaviours. A business credit check will assess the credit file of potential partnerships, including cross directorships that may present conflicts of interest, so you can get a whole-picture view of the credit behaviour of a director and their related businesses.

For better time management

Chasing up unpaid invoices can put strain on the workloads of business owners and directors, already juggling the responsibilities of wearing many hats. The time spent chasing payments could be far better spent on tasks encouraging the growth of the business. By performing a credit check on new customers, you’ll get a deeper insight into their payment behaviour, and limit the likelihood of working with businesses who could struggle to make invoice payments.   

Make better decisions with a credit file check

Now that you understand the significance of running a credit file check on potential customers and business partnerships, it’s crucial that you choose the best in credit reporting for your business.

CreditorWatch’s credit reports are extensive, compiled from public and private data sources, including ATO tax debt default data, court data, ABR, ASIC, as well as our comprehensive databases. And unlike competitors, we access exclusive trade payment data from Xero and MYOB, so you can rest assured you’re getting the most up-to-date and detailed reporting tools to help you manage business credit risk.

Our tools provide you with all the information you need in one easy-to-follow credit report, including details of a business’s adverse financial information, cross directorships, and indicators of potential phoenix activity, as well as customisable reporting. Whatever the size of your business and scope of your goals, using a credit file check can help you to make better financial decisions.

Contact us today to hear more about how our suite of digital credit management tools can help you protect and grow your business.

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Teagan Caruana
Senior Account Manager
Teagan joined CreditorWatch in June 2021. Teagan has experience in the energy sector as well as working for a trend forecasting company delivering business intelligence across many industries. Today, in her Senior Account manager role at CreditorWatch, Teagan works closely alongside her client base acting as a trusted advisor to help Australian Businesses find solutions to mitigate credit and supply risk.
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Subscribe to our newsletter

You’ll never miss our latest news, webinars, podcasts, etc. Our newsletter is sent out regularly, so don’t miss out.