Company credit checks are an underutilised resource that can offer significant benefits to any business. Not only can performing a credit check on customers, suppliers or potential business partners protect you from credit risk and cash flow issues – you’ll be able to make more informed, data-driven decisions to facilitate business growth. 

Finding and securing high-quality customers can be a challenge for emerging businesses, or those looking to upscale. One of the best ways a business can protect its cash flow and ensure operational efficiencies are maintained is through performing a credit check for companies you may engage with. 

If you’ve never performed a credit check for a client or business partner, or if you’re investigating innovative tools to help you run business credit reports, it’s important you understand the fundamentals of why and how a business must run credit checks.   

Using credit checks to protect your business 

A business credit check allows you to discover the creditworthiness of a client, or business trading partner. Most importantly, it will showcase their business credit report and credit score, helping you gain a deeper understanding of their comprehensive financial history. 

If you fail to run a credit check for a company you’re considering engaging with in any capacity financially, you may not sufficiently protect your business against credit risk. 

Why run credit checks? 

It may seem excessive at first, but performing a credit check on each and every company you work with is necessary to protect any business, large or small.  

Say you’re looking to engage with a new supplier. By running a credit check on this supplier, ahead of engaging with them for goods or materials, you’ll gain a full-picture view of their company credit history and credit risk. If there are any instances of adverse events, such as late payments or default, this is immensely valuable data that allows you to make an informed decision on whether to continue to work with said supplier. 

CreditorWatch research shows that over 50% of businesses that incur a payment default will go into administration within 18 months. Business owners can employ the knowledge garnered from a credit check into high-level decision-making, concerning whether to expose the business to additional risk by engaging with said supplier. 

By not allowing your business to engage with companies that have poor payment behaviours to begin with, you can potentially avoid cash flow problems ahead of time, as well as workload strain, and resources wasted chasing unpaid invoices. 

How to run credit checks 

Running a credit check on another business can be a relatively straightforward process, when you partner with a reporting bureau, such as CreditorWatch. Moreover, there are a multitude of further reporting tools that businesses can take advantage of to stay ahead of bad debt, avoid risky customers, and make the best decisions for your business. 

Tools to understand credit history and credit risk – the most streamlined way a business can identify the credit history and credit risk of another business is through business credit reports. CreditorWatch’s business credit check reports reveal the level of credit risk another business may pose, utilising company information from our comprehensive database. The business credit report showcases financial information to help you decide who to do business with, including any defaults registered against the company, ATO tax defaults, court actions and other important adverse data. 

In terms of credit risk, you may want to put CreditorWatch’s RiskScore technology to use to protect your business. RiskScore allows you to identify which businesses are most likely to default in the next 12 months. It assigns each business a numerical credit score between 0-850, and the higher the score, the lower risk the entity poses to your business. 

Tools to understand payment history – A business that has a history of late payment behaviour with other companies is likely to repeat that behaviour with your invoices, creating cash flow problems amid rising outgoings. CreditorWatch’s Payment Rating tool provides you with a company’s detailed payment history, including the average number of days it takes to pay its bills. 

It then rates your customers from A to E, according to their payment history, grading their likelihood of paying you on time. A poor payment history indicates a business is a high-risk entity to engage with. Arming yourself with this information means you know which businesses to avoid. 

Tools to predict likelihood of default – It’s not just late payments on their invoices that business owners need to be wary of, but also avoiding risky customers more likely to default on said invoices. CreditorWatch offers an interactive trade program, DebtorLogic, that reveals customers that may be showing warning signs of credit risk. DebtorLogic analyses your customer portfolio to predict the likelihood of payments based on their past behaviour, offering you the ability to easily identify high-risk debtors to prioritise your collections.   

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